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When Exactly Do Suspensive Conditions in OTPs Become Effective?

Parties involved in immovable property purchase transactions always hope that the transactions will be completed without any glitches. The Purchaser would be looking forward to owning the new home, the seller would be anticipating rewards for a successful business deal, and the estate agent would be counting on recording another successful sale on their books.

Unfortunately not all property sale transactions go through as per the hopes and expectations of the parties. Sometimes the complications may even come from third parties e.g electricians and plumbers fixing the property. It is important therefore that the seller, purchaser and estate agent adequately prepare for all the requisites to forestall some of the complications that may arise and delay the process.

Suspensive Conditions

Unconditional/Conditional Property Sale Agreements

Property sale agreements that are unconditional usually present no problems, it is usually property sale agreements where some specific future conditions must be fulfilled first in order for the agreement to come into force.

As to the exact moment when such conditions are said to have been met, thereby putting the agreement into force and effect is a very important aspect for legal purposes.

In this article, Phoenix Bonds will advise Purchasers, Sellers and Estate Agents on how to determine when exactly a bond approval suspensive condition is said to have been fulfilled, and in the event that such condition is not met, what becomes of the agreement as well as to what can be done about it.

Where a property sale transaction is conditional on the approval of a bond in favour of the Purchaser, the question as to when approval is deemed to be successful largely depends on the bank’s internal processes which differ from one financial institution to the other. However, it is accepted that this process commences once credit checks and FICA requirements have been deemed to be in order. An Approval in Principle (AIP) is usually issued pending the valuation of the property by the bank, before they issue a quotation with terms to the Purchaser.

Upon the bank evaluating the property and issuing the quotation to the purchaser, at the point where the Purchaser accepts the terms and conditions of the quotation, it is at that moment when the suspensive condition is deemed to be fulfilled thereby resulting in the Offer to Purchase being binding and effective. The Court in Basson v Remini And Another 1992 (2) SA 322 (N) held that once the quotation is accepted, then the suspensive condition is legally deemed to be met.

Where the bank approves a lesser amount the condition is not considered as met because the amount is not in full as per the OTP. The Purchaser may then waive the bond condition in a way that is clear and unequivocal, in writing, signed by both parties, before the period lapses, and gets an opportunity to raise the remainder of the amount within the given period. However, where the purchaser accepted the loan quotation but does not agree with the interest, the condition is deemed to have been fulfilled. It then becomes very important for parties involved in property sale transactions to specify within the OTP as to what exactly will be deemed as approval. It becomes helpful especially where litigation is involved in the event of a dispute.

Suspensive conditions prescribe a period in the OTP within which they must be met for the agreement to be binding and effective. Hypothetically speaking therefore, where the period lapses before the condition is met results in no contract coming into force. There are various reasons why a suspensive condition may not be met within its time e.g bank still conducting checks, Purchaser submitting requested documents late to the bank for evaluation, Purchaser rejecting loan agreements with unfavourable terms from banks etc.

In the case of McPherson v Khanyise Capital (Pty) Ltd and Others (2009) ZAGPHC 57 (27 February 2009) the Purchaser failed to pay R2 500 000 within 60 days as was stipulated in the agreement, and the Seller extended the period. The Court held that such extension was null and void, and that the agreement did not come into force once the 60 days lapsed without the amount being paid in full.

In the case of Mekwa Nominees v Roberts (1) 1985 (2) SA 498 (W) it was held that a suspensive condition which has lapsed could not be waived.

What then should parties do in order for the agreement not to lapse due to suspensive conditions not being fulfilled within the stipulated time?

In the event that parties foresee that the suspensive conditions might reasonably not be met within the period given, they may conclude an addendum extending the period, before it lapses. This was the principle upheld in the case of Fairoaks Investment Holding (Pty) Ltd and Another v Oliver and Others 2008 (4) SA 302 (SCA) after the Court confirmed that lapsed conditions may not be waived nor the agreement revived by an extension. A new agreement must be entered into even under the same terms and conditions.

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