Buying And Selling Property: The Bond Clause Blues, And How To Beat Them

“Men keep agreements when it is to the advantage of neither to break them” (Solon, Athenian lawgiver c. 638 BC - 559 BC)

Here’s the story of yet another High Court battle over a disputed property sale agreement.  A fight over how to interpret the “bond clause” again highlighted how vital it is to clearly express the intentions of both the seller and the buyer in every word of the agreement.

A seller gets cold feet

The relevant facts were these –

•             The seller sold a property to the buyer for R1,62m, payable on registration of transfer.

•             The bond clause made the sale conditional on the buyer, within 7 days of signature of the sale agreement, “being able to obtain” a loan for the full R1,62m on the security of a mortgage bond.

•             Payment had to be secured by a banker’s or other guarantee within a further 7 days.

•             The loan was approved within 5 days, the bank issued two draft letters of guarantee for the R1,62m and sent them for approval to the transferring attorneys, who returned them with certain corrections.

•             Getting cold feet over the sale for some reason, the seller tried to pull out.

•             The buyer responded by asking the Court to declare the sale valid and to order the transfer to proceed.

•             One of the seller’s arguments was that “no signed bond approval or confirmation was received”.

•             Dismissing this argument, the Court pointed out that, per the actual wording of the bond clause, nothing more was required of the buyer than that it should be “able to obtain” the loan of R1,62m, which it had achieved.

The Court’s decision, and a warning

The Court ordered the seller to proceed with the transfer, rubbing salt in his wounds with a costs order against him.

The bottom line is that if, as seems likely, the seller wanted the comfort of something more from the buyer’s bank than just draft letters of guarantee, he should have worded the bond clause to provide clearly and unambiguously for an actual signed bond approval to be lodged.

It’s once again a warning to both sellers and buyers: Sign nothing before taking proper legal advice!

Source: Hannes Pretorius, Bock & Bryant September Newsletter