Important Clauses in an Offer to Purchase Document
Beware before you sign an offer to purchase.
Buying a property will probably be the most important documents you will sign in your life. It is best to have a Conveyancer draft or scrutinise the Offer to Purchase before signature.
When both parties sign the offer to purchase it becomes a binding legal contract setting out the parties rights and obligations. You will sometimes hear the phrase buyer remorse or the Latin Phrases Caveat emptor or caveat scriptor.
Never be pressured to sign a contract you have not carefully scrutinized. It is not uncommon for an agent or seller to use a closing technique by pressurising the Purchaser with a statement that the purchaser must immediately sign because there are other parties also making an offer on the property at that very moment.
Reduce to writing all representations regarding the assets. Never believe salesperson talk. Always get it in writing. If not possible to incorporate in the offer to purchase independently verify the verbal facts as related.
- Assess the actual market value of the property and properties in the area.
- The municipal valuation of the property. Usually reflected on rates and taxes account.
- Approved building plans for the property. Coverage/Zoning
- Check on the availability of amenities, Schools in the area.
- Check the crime statistics of the area.
- Obtain a copy of the current Title Deed of the property.
- Sectional Title/Security estate/Home Owners Association. Check rules, levies and costs.
- Electrical and Beetle certificate.
- Look at stipulated times for acquiring Finance and the issuing of Guarantees.
- Deposit-Pay the deposit in the account of the transferring attorney.
Make sure you are 100% aware of your obligations in terms of the agreement. In certain cases, the seller could end up being entitled to as much as the whole sale price if the buyer is in breach of certain elements of the contract.
- Parties to the Agreement. The identities of the parties must be ascertainable.
- The seller need not be the owner; he may not yet have taken the transfer of the property but may be allowed to resell it. This must however be disclosed in the contract, as well as who the owner is, and that transfer of the property cannot be passed to the purchaser before the seller has obtained the transfer himself.
- If a party does not have the contractual capacity to conclude a contract, his name must still be cited, together with the identity of the person assisting him (i.e. the guardian of a minor).
- If a contract is entered into on behalf of a company or close corporation (cc), the name of the company or cc must be cited, together with the name of the person authorised to conclude the contract.
- If a contract is entered into on behalf of a partnership, the names of the partners must be cited.
- It is always a good idea to include contact numbers, i.e. Tel, Fax, Cell & Email.
Description of Property
The best description of the property is the one contained in its title deed. If you do not have the title deed available, use your water and electricity bill to locate the erf number and quote it together with the physical address of the property.
Sale and Purchase of What? Describe all included and excluded fixtures.
When you buy a house, you in fact buy the land on which the house is situated. The house, being a permanent improvement, forms part of the land. All surface and subsurface soil, water, trees and plants on the land are by law included in the purchase. Also included are all the permanent improvements (like a house or other buildings, a borehole or a swimming pool) and all movable items, which have been permanently affixed to a house or other buildings (called permanent fixtures).
All movable accessories which are of permanent service to the immovable property and which are necessary for its effective use of exploitation are also included in the purchase of the property unless agreed otherwise (Examples are the pool cleaning equipment or stools which go with the built-in breakfast nook.)
It is not a legal rule that certain items like stoves, carpets, light fittings, built-in cupboards, and so on, are permanent fixtures.
To avoid dispute, always specify and describe in writing on the offer to purchase document which items are included and which items are excluded in the purchase/sale, especially if you are not clear whether they are permanent improvements or movable fixtures. For example, whether the swimming pool equipment or television aerial/satellite dish is included in the purchase.
Purchase Price and Guarantees
The purchase price must either be a fixed amount (i.e. R100 000.00) or be readily ascertainable (i.e. R100.00 per square meter, including the correct size of the property). Unless agreed otherwise, the purchase price is payable in a lump sum on the transfer of the property to the buyer. The guarantees referred to in the offer to purchase examples mean that the purchaser furnishes the seller with a promise from a bank that the price will be paid in full once the property is registered in the name of the purchaser (the purchaser will then pay off this 'mortgage bond' to the bank).
Defects - and the "Voetstoots" Clause
BE AWARE of certain defect clauses. In certain instances, the buyer is protected against severe defects discovered after the transfer on a property has gone through. The law will attempt to determine whether the defect is patent or latent, and on these grounds, make a ruling as to who is responsible for the cost of repair.
A patent defect is clearly visible upon inspection, like a crack in a wall or window, and it should be stated in the offer to purchase who will be responsible for fixing (or replacing) the defect.
A latent defect is not so easily picked up on the superficial inspection, for example, a faulty geyser, a damp area concealed behind furniture or fresh paint or a leaking roof.
The seller is responsible for all latent defects in the property for three years from the date of sale of the property. The seller should supply all warranties and documentation of repairs and maintenance on the transfer of the property. At the same token, the buyer must ensure that he is aware of all patent and latent flaws.
As a result of the seller's responsibility for latent defects, sellers will usually stipulate that the property is for sale 'as is' ('Voetstoots'). The seller is still responsible for any deliberately concealed latent flaw or defect. The burden of proving that the seller knows or ought to have known about the latent defect rests on the buyer. Depending on the circumstances, (and if the buyer can prove that the seller knows or ought to have known about the defect), the buyer can cancel the contract and/or claim repayment of a portion of the purchase price when a latent defect is present.
All faults that have been detected should be recorded in the offer to purchase document along with details regarding which party will be responsible for their repair. The purchaser can insist on certain guarantees. For example, under the clause section 'Special Conditions', the buyer can stipulate that, "The Seller hereby warrants that the swimming pool on the Property sold is not leaking at the date of signature hereof by him". To protect yourself, as the purchaser it may be worth having a property inspection company inspect the property. The cost of the inspection will be for the purchaser's account.
Risk, Rates, Rental Income and Ownership
The seller is responsible for any loss or damage caused by him (or his children or employees and so on) before the purchaser takes the transfer. The agreement can be altered to state that the buyer is responsible for any loss or damage of any kind whatsoever from the date that the buyer takes occupation of the property. In the case of accidental damage or damage due to 'acts of God,' the buyer carries the risk from the date of conclusion of a contract, provided the contract is not subject to suspensive conditions, in which case the risk remains with the seller. If the conditions are fulfilled, the risk is deemed to have passed to the buyer.
Usually from the date of transfer, the buyer will have all benefits attached to the property and all the risk of the property will pass to the buyer. The buyer will be liable for all rates and taxes and/or levies payable on the property from the date of transfer and the buyer will have to refund to the seller, any amounts paid upfront in respect of the rates and taxes and/or levies on the property.
The buyer will have the benefits of any rental income on the property, (if the property is let to a third party at the time of purchase), only once the transfer takes place, although this can be regulated contractually between the parties. Ownership of the property takes place on transfer and not on occupation.
Registration and Transfer Fees
The purchaser will be liable for payment of transfer duty and all costs and fees in connection with the registration of the bond and transfer of the property on demand by the conveyancing attorney.
Estate Agents' Commission
The Seller will be liable for the payment of any estate agents' commission (if applicable) on demand by the conveyancing attorney, once the registration and transfer has taken place.
Occupation and Occupational Interest
Occupational Interest is more commonly known as Occupational Rent. The occupational interest can either be a fixed amount (usually it is calculated as either the amount of the seller's bond repayment on the property or 1% of the purchase price) or an amount subject to an escalation if registration of transfer has not taken place within a certain period (this may apply when the occupational interest amount is less than the seller's bond repayments). If there is uncertainty about the occupation date, it is best to record in writing the latest date upon which the purchaser is willing to take occupation of the property.
Domicilia Citandi Et Executandi
Domicilia Citandi Et Executandi also referred to as Domicilium, is the physical address you give for any legal documents and notices to be served to you. If you have been sent a document or notice to this address, you will be deemed to have received it, even if you did not in fact receive it. This may not be a PO Box or Private Bag address.
Purchaser's Cooling-Off Right
- Legally the Cooling Off Right does NOT apply if:
- The property is intended to be used for anything other than residential property;
- It is agricultural land;
- The purchase price of the property exceeds R 250 000.00 (i.e. from R 250 001.00 and more);
- The purchaser is not a natural person (i.e. a trust, company, close corporation, etc.);
- The property is purchased at a publicly advertised auction;
- The seller and purchaser concerned have previously entered into a sale agreement of the property on substantially the same terms;
- The purchaser has nominated or appointed another person to take over his rights and obligations in terms of the offer or sale agreement in question;
- The purchaser bought the property by the exercise of an option that was open for a period of at least five working days.
No person will be entitled to any remuneration payable if the purchaser exercises his Cooling Off Right. The buyer cannot waive (give up) his Cooling Off Right.
"Escape" Clause. Suspensive Conditions
In certain cases, the seller could include what is generally known as an "Escape Clause". When the buyer signs the offer to purchase subject to the buyer selling his existing property or obtaining a home loan for the purchase amount, this kind of condition usually has a time frame in which it needs to be either met or waived, it could be anything between 15 and 60 days.
Breach of Contract
A breach of contract exists when one or all of the parties to the contract does not do what was agreed upon in the offer to purchase. Examples of circumstances are:
If the buyer does not pay his deposit to the seller's attorneys in time as agreed upon in the offer to purchase;
If the buyer does not present the necessary guarantees from his bank in time as agreed upon;
If the buyer does not make any effort to get finance for the property, and this was agreed upon in the offer to purchase, to do so;
If either the buyer or seller fails to sign the necessary documentation to effect the transfer of the property upon request to do so by the conveyancers.
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