Buyers & Sellers Beware: Not Fulfilling Or Cancelling A Property Agreement Creates Claimable Damages
Category Buying and Selling Property
A property sales contract is a binding document once signed and the terms and conditions in an offer to purchase are designed to protect both the buyer and the seller and prevent either party from unilaterally changing their mind to the detriment of the other. If either the buyer or seller want to cancel or act to cause a breach of the contract, they could be held accountable for the breach of contract and could be penalised if the opposing party were to claim damages.
A property sales agreement can only legally be cancelled without the risk of penalty, if one or more of the suspensive conditions could not be met (i.e. when the sale is subject to and conditional upon a bond approval or the sale of another property), or if the contract stipulates that either party is allowed to cancel the contract within a stipulated period of time (a so-called 72-hour clause).
"Look before you leap" (wise old proverb)
Don't let the excitement of buying a property blind you to the necessity of doing your homework before you agree to anything. Look before you leap!
It is not just a matter of buying the right property at the right price - make sure that your finances (and particularly your cash flow situation) would not stop you from fulfilling the financial obligations your signature on the sale agreement binds you to.
Otherwise, you could find yourself in the same unenviable position as the property buyer recently ordered by the High Court to pay substantial damages after she could not pay the required deposits.
1. Three sales, and the seller claims damages
- A trust sold a property to a buyer for R750,000.
- The buyer failed to pay the two required deposits totalling R280,000, the trust cancelled the sale and put the property up for resale.
- It resold the property for R500,000 and sued the buyer for its R250,000 loss on the sale, plus the estate agent's commission of R22,500 it paid for the new sale.
- The buyer fought the claim on a variety of grounds, none of which found favour with the Court. It ordered the buyer to pay, in addition to legal costs on an attorney and client scale, a total in damages of R235,875. That's a figure seemingly arrived at by the Court by considering an amount of R40,000 already paid in by the buyer, which presumably leaves the buyer down a total of just under R280k plus two sets of legal costs.
2. Other breach of contract examples allowing a claim for damages
2.1 If the seller for instance has already bought somewhere else and is expecting money from this transaction to pay for the future residence, or the buyer has vacated his property and moved from afar in anticipation of moving to his new home, these changes set in motion cost and the party who is not at fault should be compensated for his loss or damages suffered. The deposit held in trust by the estate agency, or the conveyancer (transfer attorney) is often the 'safety net' in cases such as these, as this can be claimed to compensate the party who is adversely affected;
2.2 If the buyer must provide bank guarantees to secure the payment of the purchase price by a certain date and the buyer fails to do so, then the transferring attorney will send a written demand to the buyer demanding delivery of the guarantees. If the buyer still fails deliver the guarantees, then the seller normally has two remedies available to him: he can either cancel the contract and claim damages or issue summons against the buyer claiming payment of the purchase price.
2.3 If for example the seller refuses or is unable to pass transfer of the property to the buyer, then the buyer may cancel the contract and claim damages. Alternatively, the buyer can issue summons against the seller claiming that the seller transfers the property to him. If the purchaser is successful, the court will order the seller to transfer the property to the buyer.
2.4 One of the most common forms of a breach in a typical sale of immovable property happens when a purchaser commits to making a payment of the purchase price, or a deposit (as the first payment), by a particular date and fails to do so.
2.5 The failure by either party to act properly to fulfil a suspensive condition can also constitute a breach of contract according to the so-called "Doctrine of Fictional Fulfilment". Where however, the party in whose favour the suspensive condition is drawn, takes all reasonable steps to fulfil that suspensive condition (e.g. the purchaser applies for the mortgage bond and takes all necessary steps in this regard) and the suspensive condition is still not fulfilled, such a purchaser cannot be placed in breach of the agreement.
3. Important lessons for buyers and sellers
3.1 Buyers: Before you sign...
Of course, the big lesson here for buyers is to make sure they can comply with the terms of the sale agreement they sign, with particular emphasis on their ability to make payments as and when due.
3.2 And sellers: Before you sign...
Sellers on the other hand will want to avoid all the risk, delay, and cost that the trust in this case was put to by investigating upfront the financial position of all potential buyers before accepting any offer. Make sure also that the terms of your sale agreement protect you adequately in the event of any default by the buyer.
3.3 Seller: Mitigate your damages
Our law requires that if you want to sue for losses you incur because of someone else's breach of contract (or wrongdoing), you must first take reasonable steps to minimise your losses.
As the Court put it: "... the mitigating rule is a rule where a breach of contract has occurred. The innocent party cannot merely sit back and allow their losses to accumulate; the party must take reasonable positive steps to prevent the occurrence or accumulation of losses. The rule does not require the innocent party to do anything more than a reasonable person could do under the same circumstances. Reasonable expenses incurred in carrying out the mitigation steps may be claimed as additional damage suffered. The onus of proving what steps could reasonably have been taken, or that the expenses incurred were unreasonable, rests on the party in breach." (Emphasis added)
As the seller, therefore, be sure to actively seek alternative buyers, use professionals to assist only as reasonably necessary, and accept only a reasonable resale price. In this case the evidence had established that the trust had acted reasonably both in reselling the property at the price it did, and in using the services of an estate agent to do so.
It should be noted that despite the provisions of the breach clause, a deposit held in trust by a conveyancer (or estate agency) cannot summarily be deemed to equate to the damages which may be suffered by an aggrieved party. In all instances, including where a "rouwkoop" clause is present, a court order must be obtained which must confirm the damages suffered by the aggrieved party and instruct the party holding the deposit to make payment of the damages accordingly.
When a breach occurs, always consult an attorney to assist in the drafting of the breach notices. The provisions of a breach clause must be strictly adhered to, to validly place a party in breach and if needs be, legally cancel the agreement. Any funds held in trust may only be dealt with strictly in accordance with the provisions of the agreement, failing which by the direction of a court order. As always, agree to nothing without professional advice!
Author Lawdotnews / Jooste Heswick Attorneys / Lourens Koen Attorneys / Hammond Pole Attorneys / Schindlers
Published 06 Jun 2023 / Views -