The purchase of property – particularly if one falls prey to an unethical estate agent or unprincipled seller – can prove to be as threatening as walking through a minefield.
The prospective buyer – especially the eager and innocent first-timer – can emerge from what should be a potentially enjoyable experience with badly burnt fingers, a severely bruised ego and a badly dented chequebook.
The basic procedure applicable to purchasing a property is relatively straightfoward, but we cannot over-emphasise the importance of dealing with a reputable and properly licensed estate agent to navigate you past the pitfalls to a successful conclusion. Hopefully this
article will assist you in ensuring that the trip is as rewarding and painless as possible. Bear in mind, an “Offer to Purchase” and an “Agreement of Sale” of immovable property is invalid unless recorded in writing and signed by both parties or their duly authorised
agents.
Once you have made a firm decision to make an offer to purchase a particular property, your estate agent will assist you in drawing up what is known as an “Offer to Purchase” – a document which will include such details as the description of the property, the purchase
price, how the purchase price must be paid and whether the purchase is subject to the procuring of a loan secured by a mortgage bond to be registered over the property, the date of occupancy, the occupational rental, whether the property is being purchased voetstoots or not, vacation of the property by tenants, and any other matters deemed necessary.
When this offer has been signed by yourself, but has not yet been accepted and signed by the seller, you are a “prospective purchaser”. The moment that your “Offer to Purchase” has been presented to the seller, and the seller signs it, it becomes an Agreement of Sale. At this stage – now that an agreement is in existence – you become the “purchaser”.
This brings us to an important issue of which you need to be aware. In terms of the law, a signed Offer to Purchase and Agreement of Sale recording a purchase price of R250 000 or less, and where certain other disqualifications do not apply (we are dealing with those later in the article) must record your rights as a prospective purchaser or purchaser to revoke your Offer to Purchase or terminate the Agreement of Sale, making you aware of your rights in terms of what is called a “cooling off period”.
The purchaser’s right to revoke an Offer to Purchase or terminate an Agreement of Sale is stipulated in Section 29A of the Alienation of Land Act 68 of 1981.
Sub-section 1: states that,subject to certain conditions which we will discuss later, a prospective purchaser or purchaser of land may, within five days after signature by him or her, or by his/her agent acting on his/her written authority, revoke the Offer to Purchase or terminate the Agreement of Sale, as the case may be, by written notice delivered to the seller or the seller’s agent within that period.
These five days are known as a “cooling off period”, and give you the opportunity to revoke the offer to purchase you have signed, or to terminate an Agreement of Sale.
It is important to note that only the purchaser enjoys the benefit of the five-day cooling off period. The seller has no such recourse.
Sub-section 2: deals with how the five days are calculated.The five days are exclusive of the day the Offer to Purchase is signed by you, or if same had been signed by the seller, whichever is applicable. In other words, in the case of an Offer to Purchase, if you sign today, the five-day period starts tomorrow. Similarly, in the case of an Agreement of Sale (the seller having signed the Offer to Purchase), the five day period commences on the day after the seller has signed. Also, the five days involved must be working days – they do not include Saturdays, Sundays and public holidays.
Sub-section 3: deals with the written notice of revoking an offer to purchase or terminating an Agreement of Sale. To be effective, this notice:
- Must be signed by you as the purchaser, or by your agent acting on your written authority
- Must clearly identify the specific offer or deed of alienation that is being revoked or terminated, by providing all its relevant details.
- Must have no conditions – you cannot, for example, say that you will revoke your offer unless the seller drops the price by R10 000.
Sub-section 4: stipulates that, where an offer is revoked or an offer to purchase is terminated, any person who received any form of payment from the purchaser or prospective purchaser must refund the full amount to the purchaser within 10 days of the date on which written notice was served on the seller or the seller’s agent.
Sub-section 5: outlines – as mentioned earlier under Sub-section 1 – when the purchaser’s right to revoke an offer or terminate a deed of alienation during a five-day cooling off period will not apply. There will be no five-day cooling off period under the following circumstances:
- If the purchase price of the land, or the price offered by the prospective purchaser, exceeds R250 000, or such higher amount that the Minister may prescribe to counter inflation (presently it is still the amount of R250 000,00)
- If the purchaser or prospective purchaser is not a natural person (a private individual), for example a trust or a company. Only when people purchase in their private capacity would they have the right to the cooling off period.
- If the purchaser or agent has purchased the land at a publicly advertised auction
- If the seller and purchaser had previously entered into a deed of alienation relating to the same property, and on substantially the same terms
- If the purchaser or prospective purchaser has reserved the right , in terms of the offer or deed of alienation, to nominate or appoint another person to take over his/her rights and obligations as stipulated in the offer or deed in question
- If the purchaser purchased the land by the exercise of an option from the seller for a period of at least five days.
Sub-section 6: underlines the fact that no person – and this includes the estate agent – will be entitled to any remuneration payable in respect of an offer to purchase or deed of alienation which the prospective purchaser or purchaser has revoked or terminated. No such person or agent will be entitled to claim damages from any person following such revocation of an Offer to Purchase or termination of an Agreement of Sale.
Sub-section 7: highlights another significant right of the prospective purchaser or purchaser. It states that if any provision in any agreement entered into by you as the prospective purchaser or purchaser – whether in writing or verbally – directly or indirectly imposes or levies a penalty or fee on you if you exercise your right to revoke or terminate, it shall be void. In other words, the agreement cannot state that if you exercise the rights to which you are entitled, you must must pay a penalty. Such a clause will be void and cannot be enforced.
Similarly, any waiver of your rights in respect of the “cooling off period” as a prospective purchaser or purchaser shall be invalid.
Sub-section 8: deals with the situation where you may purchase a second property. If you sign an Offer to Purchase or an Agreement of Sale in respect of a second property, within five days of having signed a prior Offer to Purchase or Agreement of Sale for another property – and if you have not exercised the right to revoke or terminate the earlier transaction – you shall:
- On signature of the later transaction be deemed to have exercised your right to revoke or terminate the earlier transaction; and
Forthwith after signature of the later transaction notify the seller of the earlier transaction in writing of the revocation or termination of that transaction. - In other words, if within the five-day cooling off period of the first deal, you sign a secondtransaction, the first deal is null and void – it is automatically revoked or terminated. But it remains your duty to immediately -still within the five-day cooling off period – advise the seller of the first property that you are exercising the right to revoke or terminate.
Sub-section 9 (a): Outlines the penalties facing the purchaser or prospective purchaser who wilfully or negligently fails to comply with the provisions of sub-section 8. He/she shall be guilty of an offence, and upon conviction will be liable to a fine, or to imprisonment for a period not exceeding one year, or to both.
Sub-section 9 (b): stipulates that the provisions of sub-section 9 (a) shall not in any way detract from any civil remedy which a seller may have against a purchaser who failed to notify the seller of the earlier transaction of the revocation or termination, as the case may be, of that earlier transaction.
It has been made clear that, by signing a second transaction, the purchaser has automatically revoked or terminated the first Offer to Purchase or Agreement of Sale. Yet, sub-section 9 (b) stipulates that the seller can exercise a civil remedy. The question is: how can the purchaser be sued for being in breach of an agreement which has been terminated and no longer exists because of the second transaction? What would the course of action be and which remedies did the legislature have in mind?
Finally, Sub-section 10: points out that sub-sections 8 and 9 above would not apply to a purchaser or prospective purchaser who has the bona fide intention of buying both properties. In other words, if you as the purchaser are able to demonstrate that it is your genuine intention to purchase both properties, then the signing of the second offer or deed will not mean the automatic revocation of termination of the first transaction.
The issue which remains cloudy, however, is how the words “bona fide” will be interpreted by a court of law. When will the court be satisfied that the evidence proves the purchaser genuinely did intend to purchase both properties?
The purchase of your family home – or the sale of your existing property and the purchase of a bigger and better one – will probably be the most expensive and significant investment of your life.
It is therefore of the utmost importance that you make the right decisions along the way, and as you can see, your signature on a piece of paper is merely the tip of the iceberg in making an offer to purchase a property. There are many issues to be considered, studied and decided. And you must make the correct decisions.
To succeed, ensure that you are working with a reputable, reliable, effective and efficient estate agent, and do not shy away from consulting your attorney with any questions that may arise. They will play a key role in ensuring that you make the right decisions.
In this way you can avoid the many risks and pitfalls that face prospective owners, and can turn a potential nightmare into a dream come true.
Disclaimer: This article is for information purpose only and does not constitute legal advice. Call on our attorneys for legal advice, rather than relying on the information herein to make any decisions. The information is relevant to the date of publishing.