Written for YourProperty

Subsequent to a previous column that dealt with the same topic, this week’s Property Poser reader would like advice from our panel of experts regarding suspensive conditions.

He put in an offer to purchase a property subject to the sale of another property and the seller accepted the offer. Our reader’s suspensive condition was never met and he accepted that his offer to purchase the property became null and void.

However, the seller’s conveyancing attorney insisted that our reader was still legally bound to buy the property even though the buyer failed to meet the suspensive condition of selling an existing property.

Grant Howard from Kaplan Blumberg attorneys in Port Elizabeth says when a suspensive condition is included in a contract, it means that the execution of the contract is suspended until the condition has been met.

“If the condition is met on or before the due date, then there will be a binding contract from the date of signature of the last contracting party. If it is not met by the due date, or any extension thereof agreed to by the parties prior to the relevant date, the contract will lapse and neither party will be bound by it.”

Howard says it often happens that a person wishes to buy a new property, but needs the capital that will be raised through the sale of an existing property to finance the transaction.

“If this is the case, it is important to include a carefully worded suspensive condition in the offer to ensure that it is in all respects subject to the sale and transfer of the purchaser’s existing property.”

If the wording of the suspensive condition is too vague, it may lead to uncertainty between the contracting parties, according to Howard.

“If there is a material difference in the interpretation of the contract and the expectations of each party, it may lead to a dispute. In some cases it may even give a party grounds for having the contract cancelled or declared void.”

Howard says an example of a vaguely worded clause would be where the suspensive condition merely states that the contract is “subject to the sale of the purchaser’s existing property”.

He says the above example does not provide for a cut-off date, therefore exposing the seller to an open-ended suspensive condition. It also does not specify that the two transactions will be financially linked.

Warren Jack, a commercial and residential property expert from the Warren Jack Property Group in PE, says the buyer’s intention would typically be to use the proceeds of the sale of his existing property to pay for the transfer costs and purchase price of the new property. “His intention is therefore that the transfer of the new property will only take place once his existing property has been successfully transferred.”

Jack says the seller’s expectation may however be that the transaction will go ahead the moment the buyer has succeeded in selling his existing property and all suspensive conditions have been met.

If the buyer does not have access to other funds, according to Jack, the seller will have no option but to wait until the first transfer has taken place and the buyer has sufficient funds to pay the costs and purchase price before the transaction can be proceeded with.

“The suspensive condition should therefore be worded to specify that the two transactions are financially linked and that the second sale is in all respects subject to the successful transfer of the first.”

Jack says it must record the fact that the buyer requires the proceeds of the sale of his existing property to pay for the purchase price (and transfer costs if applicable) of the second.

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