What's Meant by the Term 'Suspensive Conditions' on Property Sales?
Category Buyer Advice
There is often confusion among buyers and sellers of property in South Africa on what the oft referred to term “Suspensive Conditions” actually means when it comes to property sales or making an offer to purchase on a property.
Whilst this article is by no means intended to be an exhaustive explanation of the subject, we have tried to shed some light below to aid in understanding.
For purposes of simplification, there are three kinds of provisions which can be contained in an agreement:
- “Normal Term” of the agreement
- A “Resolutive” condition
- A “Suspensive” condition
A so-called “Normal Term” on property sales would be a provision contained in the offer to purchase agreement such as a provision that the purchaser of the property must pay a deposit of R100 000 on or before a certain stated date. If the purchaser does not pay the deposit on or before such date, the property purchaser will then be in breach of the offer to purchase agreement and one will then have to look at the breach clause in the contract to check on the remedies available.
A “resolutive condition” is, for practical purposes, a condition which, if fulfilled, would have the effect of terminating the agreement. The sale agreement would therefore remain in full force and effect unless a certain event happens. If such event happens then, in terms of the resolutive condition, the agreement would terminate. An example of this would be a clause which provides that in the event that the neighbour on the left hand side of the property in question objects to the sale within 7 (seven) days after being given notice of the sale, this agreement will automatically terminate and be of no further force or effect.
For the purposes of this particular article, we will be dealing mainly with suspensive conditions in property sales. Suspensive conditions often cause problems in the offer to purchase agreement on property sales due to the fact that the parties do not word the clauses properly and do not ensure that the suspensive conditions are fulfilled timeously. To simplify, if a suspensive condition is contained in a sale agreement, the agreement does not come into operation unless the suspensive condition is fulfilled. This does not mean that the parties do not have to comply with the agreement until the date that the suspensive condition is fulfilled. If the clause provides that the suspensive condition must be fulfilled within sixty days but imposes an obligation on the party to attend to a certain function within seven days (for example pay the deposit within 7 days) the party must still comply with such obligation.
If however the suspensive condition is not fulfilled timeously then the agreement automatically terminates and is of no further force or effect. The normal suspensive conditions relating to property sales which are contained in the sale agreement on immovable property would be the so-called mortgage or bond clause and the subject-to the sale of another property clause. Thus most agreements are subject to the purchaser obtaining a loan upon the security of a mortgage bond to be registered over the property within a certain period of time. Property Sale agreements are also sometimes subject to the purchaser selling property by a certain date and at a certain price.
When you are dealing with suspensive conditions on property sales, you need to ensure that there is full fulfillment of the relevant condition. One might state that the fulfillment of a suspensive condition is an exact science. Thus, if the sale agreement is subject to the property purchaser obtaining a loan upon the security of a mortgage bond to be registered over the property within thirty days in an amount of R1 000 000.00, if the loan is granted on the 31st day, the suspensive condition will not be fulfilled.Similarly if the loan is granted for nine hundred and ninety thousand Rands, the suspensive condition will also not be fulfilled. One cannot argue that there was substantial compliance.
A number of contracts such as a will, suretyship and most important of all an agreement for the sale of immovable property have to be reduced to writing and signed by the parties (other than of course if the property is sold at a genuine auction sale). The effect of this is that, if the suspensive condition is not fulfilled, the sale agreement effectively dies and cannot be revived by the conduct of the parties. If it were not for the fact that the agreement of sale of land has to be reduced to writing, one could have revived the agreement by the conduct of the parties. However, this cannot be done with the sale of immovable property.
Thus, if a suspensive condition for the sale of a motor vehicle was not fulfilled timeously and the parties decided to continue on with the agreement if the suspensive condition is later fulfilled, the contract would be binding and the party relying on the suspensive condition would be estopped (the legal term for stating that the party will not be allowed to deny) from stating that the agreement was proceeding. With the sale of immovable property, this does not apply and one would have to draft a new agreement. One could not do an addendum to the agreement in order to revive the agreement as one cannot revive a nullity. It is therefore important that one ensures that the suspensive conditions are fulfilled timeously and if one believes that the condition will not be fulfilled timeously that an addendum is drafted and signed by both parties extending the period for the fulfillment of such suspensive condition prior to the period in which such suspensive condition had to be fulfilled.
It’s important to remember that one can, under certain circumstances, elect to waive compliance with suspensive conditions on property sales. In the next article, we will deal with the waiver of suspensive conditions, the suspensive conditions relating to the sale of a second property and the doctrine of fictional fulfillment.
From a property buying or selling perspective it’s important to ensure that suspensive conditions are fulfilled or waived timeously and that there is full compliance with any of the suspensive conditions relating to property sales.
Author: Barry Davies