Make sure agreement of sale has back-out clause

How far can you make use of conditional clauses in your favour when you sign an agreement of sale?

How far can you make use of conditional clauses in your favour when you sign an agreement of sale?

For instance, if you are buying a house but are still going to receive a deposit from a third party, can you make the actual securing of the deposit a condition?

In one of many cases handled by the Office of the Ombudsman for Banking Services (OBS), a prospective property buyer signed an agreement of sale to buy a property worth R1million in Johannesburg.

He was to apply for a bond of R850000 as he undertook to pay R150000 deposit, which was going to be a loan from his sister.

But he did not make the deposit payment a conditional clause in the agreement of sale, says ombudsman Clive Pillay.

Things changed when the buyer's sister was robbed, decided to emigrate and could not lend her brother the R150 000.

On informing the estate agent that he was not able to proceed with the deal, he was told that he was bound to the agreement because he did not have a "back-out clause".

The estate agent told him that the agreement of sale was not made conditional upon the securing of the loan of R150000.

The estate agent said that if he did not proceed, he would be liable to legal action from the seller as well as for the payment of an estate agent's commission, said Pillay.

The only way to avoid this potential legal action was to apply for a 100 percent bond.

Feeling trapped, the buyer completed a fresh application for a full bond.

He thought his application would be declined because his financial circumstances were not up to scratch, thus affording him the justification to cancel the deal.

But his bond application for R1million was approved.

Pillay says the buyer approached his office because he felt it was impossible for him to have qualified for a R1million bond, based on his financial circumstances.

Pillay says the buyer believed that the approval of the bond constituted reckless lending.

But the bank refused to allow the buyer to resile from the contract, stressing that the bond was granted because the applicant had met the bank's scoring criteria with income and expenditure displaying affordability.

Pillay says the buyer made a mistake by not making the agreement of sale conditional upon securing the deposit.

This means that he should have ensured that the agreement is made conditional upon the funds actually becoming available.

"If you are selling your house at the same time as buying a new house, then make the agreement conditional upon the sale of your existing home," cautions Pillay.

If you are selling your home, for instance, Pillay says you should not only make the agreement conditional upon the sale of your existing home, but also make it conditional upon the sale of your existing home for not less than the minimum sum you would like to receive for the sale of your house.

In addition, make the agreement of sale conditional upon your being able to secure a bond for not less than the amount stipulated in the agreement.

He adds that you should make sure not only that you secure a bond for the amount stipulated, but that the bond is granted within a reasonable time, for example, 30 days.

Where applicable, make sure that the seller provides a current electrical wiring certificate and that all outstanding rates, levies and so forth have been paid.

"It is advisable to consult an attorney before signing an agreement of sale," says Pillay.