Upholding Contractual Formalities in Sale Agreements

In the recent case of Hughes v Gargassoulas and others, heard by the Supreme Court of Appeal (SCA), and delivered on 12 April 2024, the court addressed a dispute surrounding the lapsing of a suspensive condition in an agreement of sale, and what constitutes a valid waiver.

Background:

The case revolved around an agreement of sale, (the Agreement) entered into on 12 February 2020 by the seller and purchaser. The purchase price was R 4 950 000.00, to be secured by a deposit of R1 000 000.00 to be paid into the trust account of the agent within seven business days and the balance to be paid to the conveyancing attorneys against the registration of transfer of the property.

The Agreement included a suspensive condition, that the purchaser must secure a mortgage loan for the balance of the purchase price by 13 March 2020, failing which the Agreement would be deemed null and void.

The deposit was paid timeously, but the purchaser failed to secure a mortgage loan by the due date.

However, Clause 6.1.4 of the Agreement stipulated that if the suspensive condition was not met by the due date, it would automatically be extended for an additional 14 days. As such, the due date for the fulfilment of the suspensive condition was 2 April 2020.

Clause 6.2 provided the purchaser with the option to waive the suspensive condition in writing, while clause 6.5 outlined the consequences of non-fulfilment. Additionally, clauses 19.4 and 19.5 mandated that all amendments to the Agreement must be in writing and signed by both parties, with any waivers to be similarly formalised.

An email from the conveyancer’s secretary on 10 March 2020 was circulated to all involved parties, notifying them that the purchaser intended to buy the property with cash instead. No response was received from any of the parties and the National Covid-19 Lockdown was implemented.

After the Covid-19 Lockdown restrictions were uplifted, a series of correspondence took place between the parties which suggested that the Agreement would not be cancelled, and that the transfer of the property would proceed.

The purchaser was finally granted with the mortgage loan on 10 June 2020.

However, as of 22 August 2020, the transfer of the property still had not occurred. The purchaser was already in occupation of the property, but there was an issue with the payment of occupational rent and the deal finally collapsed after the purchaser discovered that there were no approved building plans for certain parts of the building on the property.

Legal Question:

Whether there is a reasonable prospect on appeal of finding that the purchaser had waived his rights in respect of the suspensive condition and whether the agreement had not lapsed due to its non-fulfilment?

Court’s Finding:

The court emphasised that the email sent by the conveyancer’s secretary amending the original terms of the offer to purchase did not constitute a valid waiver unless the seller and the purchaser entered into and signed a separate written addendum specifically setting out the amendment.  In the absence of such a written addendum the suspensive condition retained its validity, and the Agreement was deemed null and void as of 2 April 2020.

Conclusion:

This judgment reinstates the critical importance of strictly adhering to contractual formalities in sale agreements. This is a further reminder that even seemingly minor deviations from established procedures can have significant legal consequences. Parties involved in sale agreements must prioritise clarity, precision, and strict compliance with contractual terms to mitigate the risk of disputes and ensure the enforceability of their agreements.

Written by: Rohula Kgabu
Moderated and approved by: Jean-Mari De Beer - le Grange

‍