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Is an offer to purchase a binding agreement?

By Adrianè S Ludorf (B Juris, LLB, LLM (Taxation)) - Mar 2, 2018
Is an offer to purchase a binding agreement?

The terminology "offer to purchase", "agreement of sale", "deed of sale" and "conditions of sale" is often used interchangeably and can create confusion as to whether an Offer to Purchase constitutes a binding agreement.

The Alienation of Land Act 68 of 1981 stipulates that no alienation of land shall be of any force or effect unless it is contained in a deed of alienation signed by the purchaser and seller, (or their agents acting on their written authority).

When it comes to the sale of immovable property the purchaser will usually submit a written Offer to Purchase to the seller, setting out the price and the terms and conditions upon which the purchaser is desirous to purchase the property.

Parties however often do not realize that an Offer to Purchase, once accepted by the seller, becomes a binding agreement with certain legal consequences.

The agreement might still be subject to certain suspensive conditions (the most common suspensive condition being the approval of the purchaser's finance, for a specified amount before a particular date), but the agreement nevertheless creates a contractual relationship between the parties, which neither party can renounce pending fulfilment of the suspensive condition. (The one exception to this rule are offers made on homes priced at R250 000 or less. Here the law allows a five day cooling off period during which the purchaser can cancel the Offer to Purchase, provided he does so in writing).

When submitting an Offer to Purchase it is therefore important that a purchaser should ensure that the offer correctly reflects the terms and conditions of his offer, because once the offer is accepted by the seller, the purchaser cannot change his offer without the seller agreeing, in writing, to such amendment.

Similarly, when a seller accepts an Offer from a purchaser, it is important to bear in mind that once the offer is accepted the seller cannot change the offer (or make a counter offer) without the purchaser agreeing in writing, to such amendment or counter offer.

A recent High Court case once again highlighted how vital it is to ensure that all amendments to a sale agreement must actually be agreed upon by both the seller and purchaser and must be signed by both of them.

In this particular case the seller signed the Offer to Purchase but made certain changes to clauses relating to inspection of the property by a Building Inspector.

The purchaser, who only became aware of these alterations after paying a 10% deposit, rejected the alterations and demanded repayment of the deposit.

When the seller refunded only part of the deposit (arguing that the purchaser's acceptance of the offer had resulted in a valid and enforceable sale agreement), the purchaser instituted legal action.

The Court found that the seller had to refund the balance of the deposit and that the seller's conditional acceptance of the offer resulted in a rejection of the offer or a counter offer. Where there are outstanding issues requiring further negotiation, either there is no agreement at all or a contract is formed with an understanding that the outstanding issues would be negotiated at a later stage.

On the facts, the Court found that the seller's alterations were material and amounted to a counter offer that was never accepted by the purchaser. There was therefore no valid sale.

Parties are well advised to consult with a property law expert before submitting, accepting or amending an Offer to Purchase.

At Goldberg & de Villiers Inc our conveyancers and property law experts – Adri Ludorf, Tracey Watson-Gill and Bardine Hall, will gladly assist you and guide you through the process of acquiring or selling property.

Contact us on telephone: +27 (0)41–501 9800 or email: info@goldlaw.co.za