Property Sale Agreement - What You Need To Know About The 72 Hour Clauses
Category Buying and Selling Property
In most, if not all, Offers to Purchase and signed Deeds of Sale, a 72-hour escape clause, or continued marketing waiver or clause, will be found. This clause, if used correctly, will permit the Seller to accept an offer on the same or better terms than the original offer and usually at a more accelerated pace than the original.
A complicated piece of South African contract law that protects a Seller from a Purchaser or Purchasers who are struggling to finance the purchase, freeing them to accept offers from individuals who may be in a better position to afford the purchase.
The 72-hour clause is directed at suspensive conditions, particularly the situation where a buyer wishes to obtain mortgage finance, is selling their own property and/or the liquidation of assets (such as art and/or expensive motor vehicles).
A suspensive condition is a clause that effectively suspends the obligations of a party or parties until the happening of an uncertain future event, an example of which is the obtaining of a full mortgage or selling a property in a specific time period. Its opposite is a resolutive condition where the contract is suspended until the happening of a certain future event; an example of which is the obtaining of a compliance certificate.
The Advantages versus Disadvantages of a 72-Hour clause:
The Buyer is protected, and able to conclude an agreement of sale without putting themselves at risk of being held liable for terms in the contract that would otherwise be near impossible without the happening of the uncertain future event. The Seller, in turn, is permitted to continue marketing the property, not being bound to a purchaser who is struggling to meet the suspensive condition and/or delaying the transaction for whatever reason.
It also permits the seller to have a wider pool of interested parties who are interested and willing to purchase. The disadvantage to the buyer is that should they not be able to meet the necessary 72-hour clause requirements, they will lose out on a purchase. For the seller it means that they will have to decide on a whole new contract, potentially delaying transfer and also the uncertain nature of a new buyer.
Conditional and Unconditional - when can the 72-Hour clause be invoked?
The clause can only be invoked before all suspensive conditions are met, not after, even with the consent of the Seller. It cannot be used if the offer or sale has lapsed because then the contract between the parties no longer exists. For a 72-hour clause to be effective, it must be worded in such a way to create 100% certainty that the new offer is not subject to any further conditions and that new offers that come with suspensive conditions are not unconditional.
Examples of such are when the second purchaser states that he has the money in cash, but the said amount is in his pension and or a fixed account subject to a waiting period, or a linked sale or liquidation of assets, such as art and/or shares.
Unconditional would be when a second buyer has the money available and can immediately issue guarantees (personally or via an attorney) for the payment of the purchase price and all costs. This, however, depends upon the wording of the particular clause, emphasising the importance of reading and understanding your particular 72-Hour clause and ensuring that you are using it properly.
Typical Errors related to 72-Hour Clauses:
- The action of treating the payment of a deposit or costs as a suspensive condition when they are normal conditions and not subject to time limits.
- Uncertainty as to whether a deal is actually a 'cash' deal, especially if a second buyer states that the money is in his pension fund.
- Incorrectly making conditions suspensive conditions when in reality they are normal conditions.
- The incorrect use of words such as "subject to" regarding conditions that were not meant to be suspensive in the Offer to Purchase.
- The failure to provide appropriate, if any, timelines for the fulfilment of suspensive conditions.
- Allowing for the submission of Bank Statements or Investment Statements as "Proof of Funds" where the agreement specifically calls for Cash or Guarantees.
- The acceptance of guarantees from foreign banks instead of having the money transferred to a South African Bank or law firm's trust account.
- Treating a preliminary mortgage approval as final.
These are a few of the typical error's experienced by conveyancing attorneys, all of which can lead to costly litigation.
So, the best defence against a badly worded or incorrectly used 72-hour clause is to read the clause and see whether you understand it
Author: ESI Attorneys