The most commonly encountered suspensive condition in agreements regulating the sale of residential property is that relating to bond finance (the so-called “mortgage bond clause”).
Ordinarily these clauses are worded along the following lines:
“This Deed of Sale is conditional upon the Purchaser obtaining bond approval from a bank or other financial institution for the amount of R2 000 000-00 on or before the 1st of October 2018, failing which this deed of sale will lapse”
With that wording in mind there are three aspects which must be addressed to fulfil the suspensive condition so as to bring about a binding sale agreement. The first is the bond must be granted by a bank or financial institution. The second is that the bond must be approved for an amount of R2 000 000.00. The third is that the bond approval must be obtained by the Purchaser on or before 1 October 2018.
Ordinarily a failure to timeously meet the letter of a suspensive condition contained in any agreement will result in that agreement lapsing and being of no further force or effect between the parties to that agreement.
But what would the position be if, in the context of the bond clause above, the bond is approved in time but it is approved for an amount less than that stipulated in the suspensive condition/mortgage bond clause (i.e. R2 000 000.00)?
This was the essence of the enquiry in Basson and Another v Reddy and Others (11695/2017) [2018].
In summary the parties in that dispute concluded a deed of sale in terms of which a property was sold to the purchaser (“Reddy”) for R 1 300 000-00. The agreement was subject to Reddy obtaining a mortgage bond for the full purchase price within 21 days after signature. A further clause stipulated that in the event of Reddy being unable to obtain the bond approval within the stipulated 21 days, the deed of sale would fall away and be of no force and effect. The deed of sale also provided that no amendment to the sale agreement would be valid unless reduced to writing and signed by the parties (the “non-variation clause”).
Reddy only succeeded in securing a 90% bond and therefore, on 28 June 2016 (within the 21 day period stipulated in the agreement), she paid R130 000-00 in cash into the trust account of the conveyancing attorney for the purpose of settling the difference between the mortgage bond finally approved and the purchase price to be paid.
There was no addendum signed to bring about an amendment to the sale agreement to cater for those changed circumstances. In the result, the sellers took the view that there had been non-compliance with the non-variation clause which, in turn, meant that Reddy had failed to timeously fulfil the requirements of the mortgage bond clause. This had the further result, according to the sellers, that the sale agreement had lapsed and was of no further force and effect.
The court held the following:
Our law recognises that a bond clause “is for the exclusive benefit of the purchaser and is consequently capable of unilateral waiver by the Purchaser provided that such waiver takes places before the date for fulfilment of the condition.”
The bond clause in the agreement being considered was consequently regarded as having been included for the benefit of Reddy and as such, Reddy could unilaterally waive the protection of the condition on or before the cut-off date (being 21 days from date of signature of the agreement). Reddy could do so by either paying the purchase price in cash or by paying the purchase price partly in cash with the remainder secured through a mortgage bond provided that whatever Reddy elected to do she did it before the cut-off date.
Important to note is that our courts have previously held that where a deposit or the guarantee/s (or both) had not been furnished within the requisite period, there could be no waiver of or compliance with the suspensive condition after the cut-off date.
In the present matter, both the guarantee (from the mortgage bond) and the sum of R130 000-00 were received by the Conveyancer before the 21-day cut-off period and it was always intended that the sum of R130 000.00 would constitute a deposit or part payment of the total purchase price and supplementary to the bond finance which had been granted.
The court held in favour of Reddy.
The moral of the story: If a suspensive condition will not be fulfilled in time or on the terms that were initially agreed upon in the deed of sale; it is vital to take the necessary precautions beforehand to avoid the risk of a lapsed deed of sale. The conveyancer handling the transfer can assist in this regard.
