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Suspensive Conditions – Beware of the pitfalls

By Adriané Sarah Ludorf – (B Juris, LLB, LLM (Taxation)); Attorney at Goldberg & de Villiers Inc - Oct 26, 2018
Suspensive Conditions – Beware of the pitfalls

Agreements of Sale in respect of immovable property often contain a condition stating that the agreement is subject to the purchaser raising a loan for a specified amount before or on a certain date, against security of a first mortgage bond to be passed over the property.

This type of condition is known as a suspensive condition.

A suspensive condition in an agreement makes the operation of the agreement subject to the occurrence of a future event.

Once the condition is fulfilled the agreement becomes bindingand its terms can be enforced by the respective parties.

In the event that the mortgage bond is not approved within the set period of time, the suspensive condition would not have been met and in terms of our law, the agreement will be of no force and effect.

What constitutes proper fulfilment of a condition depends on the intention of the parties as expressed in the agreement. If the agreement is not entirely clear on the matter, account must be taken of all surrounding circumstances and facts.

Parties may intend either that a condition must be fulfilled in the precise manner stated in the agreement, or that it may be fulfilled in some other (similar) manner.

The conditions must be fulfilled on or before the time limit stated in the agreement. If no time limit is stipulated, the conditions must be fulfilled within a reasonable time unless it appears that the parties intended that no time limit be set. Whether a reasonable time for the fulfilment has elapsed depends on the particular circumstances of each individual case.

It often happens that a party wishes to extend the time period within which to fulfil the suspensive condition.

Recent High Court case of Abrinah 7804 Pty Ltd v Kapa Koni Investments CC

Should a party wish to extend this time period, it is important to read the entire agreement and follow the correct procedure to extend the suspensive condition. Most agreements have a clause, which determines that any extension and/or indulgence must be in writing and signed by both parties, in order to be valid.

In the recent High Court case of Abrinah 7804 Pty Ltd v Kapa Koni Investments CC (717/2016) [2017] ZANCHC 1 (13 January 2017), the court was faced with this exact situation. The parties concluded a deed of sale in which the purchaser was afforded a period of 6 months to obtain a mortgage bond, which the purchaser then failed to do.

The seller subsequently addressed a letter to the purchaser, after the expiration date of the suspensive condition, providing an extension of a further 14 days to comply with the suspensive condition.

The court held that an agreement, subject to a suspensive condition, automatically falls away when the condition is not fulfilled by the expiration date as no agreement remains.

Accordingly, nothing can be done after the expiration date and no extension can happen after the fact, as no agreement exists.

Should the parties wish to extend the expiration date, such extension should happen prior to the expiration date and should be in writing, signed by both parties.

If the expiration date has passed, but the parties still wish to continue with the sale, the only way the situation can then be remedied is to conclude a new agreement on the same terms as the expired agreement, or to conclude a reinstatement agreement.

It is always wise to tread carefully when dealing with suspensive conditions:

  • ?   Make sure that you read the agreement carefully and ensure that all timeframes are met.
  • ?   Follow the exact procedure to extend the suspensive condition.
  • ?   Seek advice from your attorney, if necessary.

Please feel free to contact us at adri@goldlaw.co.za for further advice.

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