Offer to Purchase: Part 1 - Terms of the Agreement

In terms of the Alienation of Land Act, 68 of 1981, an agreement for the sale of immovable property, also known as an Offer to Purchase (OTP) in the industry, must be in writing and signed by the parties thereto.

Essential  elements of an agreement of sale

While each OTP may vary slightly in layout and content, there are 3 essential elements which must be included in order for the OTP to be valid and legally binding. These are a description of the parties to the agreement of sale (i.e. the buyer/s and seller/s), the purchase price, and the description of the property being transferred.

In addition to these three essential elements, the OTP typically includes a number of other sections which facilitates the smooth transfer of property, and while not an exhaustive list, these are key aspects to consider:

Bonds and finance

If a buyer will be borrowing money from a bank as a means of paying for the property, this information will be recorded in the OTP. The bond will be registered simultaneously with the transfer of property into the buyer’s name. As part of this section, provision will be made for the OTP to be suspensive, pending approval of the bond application by the bank, meaning that the contract will only come into force should the buyer be approved for the required finance. If this is not the case, and the buyer does not qualify for the necessary loan, the OTP will become null and void.

Occupation

This clause will stipulate when the buyer will move in. This is important considering the buyer only becomes the owner on the date that the transfer is registered. If the buyer moves in before registration takes place, compensation in the form of occupational rent must be paid to the seller as the existing owner. The same principle is applicable when the seller remains in the property after registration of the transfer has been completed.

Possession

This section clearly outlines that all benefits and risks of ownership are passed on the date of registration of the transfer from the seller to the buyer. From this date, the buyer as the new owner of the property will be liable for all rates, taxes and levies, as well as other responsibilities related to the ownership of the property.

Breach of Contract

All remedies are clearly laid out in this section so that all parties are aware of the consequences of one party being in breach of contract, for example, if a buyer does not pay the required deposit. The conveyancing attorneys attending to the matter will take instruction to place the defaulting party on terms, providing a set timeframe, stipulated in this OTP clause, within which to remedy the breach, failing which the contract may be cancelled by notice to that effect to the defaulting party.

Purchaser’s Capacity

OTPs often stipulate that, should the property be bought by a legal entity such as a company, the individual who signs on behalf of the entity will be personally liable in the case where the company cannot fulfil its duties under the terms of the contract.

Certificates

This section sets out the necessary compliance certificates which will be required, depending on the property being transferred. These may include electrical, gas and electric fence certificates.

Cooling Off Period

In terms of the Alienation of Land Act, 68 of 1981, a cooling off period is applied to OTPs where the property value does not exceed R250 000. This means that a buyer can legally cancel the OTP within 5 working days of signing by giving written notice.

Tax

A tax clause within an OTP will deal with what type of tax is applicable to the relevant property transfer – typically, this will be either VAT or Transfer Duty.

While these are the most commonly included sections based on industry best practice, when entering into an agreement of sale or when perusing your agreement of sale, it is always worth consulting a property professional who will be able to advise you on your specific transfer.

Find out more tips for Buyers and Sellers.

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Written by Wessel de Kock

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