Can You Get Out of a Property Purchase? What Are The Legal Consequences?

So, you have found your dream home and signed the paperwork to buy it. But what if something changes and you want to back out? It’s a big deal, and it’s not as simple as just changing your mind. Let us break down what happens when you want to cancel a property purchase in South Africa.

1. The Paperwork Is a Big Deal

The "Offer to Purchase" (OTP) is the main document you sign. Think of it as a serious promise. Once you and the seller both sign it, you’re legally locked into the deal. Pulling out after this can have serious consequences for your wallet and your legal standing.

2. When Can You Legally Get Out of It?

There are a few situations where you can legally walk away from the deal without getting into trouble:

• The "Cooling-Off" Period: In very rare cases, like when a property is sold to you through a pushy sales pitch, you might have five days to cancel the deal. But this almost never applies to a normal home sale through a real estate agent or a private seller. You may have heard rumours or seen news stories that suggest a home buyer has a general right to cancel a property sale within five days. This is not true.

The Consumer Protection Act (CPA) does not give a buyer a five-day "cooling-off" period for a regular property sale. The only law that allows for this is the Alienation of Land Act, and it has very specific conditions. This rule only applies if the property was sold for R250 000 or less.

• "Get-Out-of-Jail-Free" Clauses: Most of the time, the offer to purchase has special conditions such as the buyer obtaining a bond or selling an existing property. These are called "suspensive conditions." For example, the deal might depend on you getting a home loan from the bank within a month. If you try your best but the bank says no, the deal falls apart, and you do not have to pay a penalty. These conditions are your safety net, so make sure they are in the contract and that you follow the deadlines.
• You Both Agree to Cancel: The buyer and seller can both agree in writing to call off the deal. This is the easiest way to end things without a fight. You might still have to pay for some fees that have already been spent, like for lawyers or the real estate agent, but you won't face bigger penalties.

3. What Happens If You Just Break the Agreement?

If you back out without a good legal reason, you are breaking the contract. This can have serious legal consequences:

If You’re the Buyer and You Back Out:

• Goodbye, Deposit: The seller can keep the deposit you paid upfront as a pre–estimate of damages or liquidated damages, depending on the terms of the OTP.
• You Could Be Sued: The seller can take you to court to pursue a civil case for further damages, to recover money they lost because the sale fell through. This could include things like the cost of having to sell the house for less money later on, extra legal fees, and more.
• The Agent Wants Their Money: Even if the sale does not happen, the real estate agent might still demand their commission from you. They will argue that they did their job (fulfilled their mandate) by finding a buyer (you) and that it was your fault the deal failed.

If the Seller Backs Out without legal justification (e.g. attempting to accept a better offer):

• They Might Be Forced to Sell: The buyer can take the seller to court and ask a judge to force them to go through with the sale.
• They Could Be Sued: The buyer can also sue the seller for any money they lost, like fees for a home loan they were getting or money spent on a place to stay while waiting to move in.

4. How to Be Smart and Stay Safe

Before you sign anything, or if you are thinking about cancelling:

• Read the Contract (OTP) Carefully: Understand every single detail in the offer to purchase before you sign it.
• Talk to a Lawyer: It is a good idea to get advice from a lawyer who deals with property sales. They can help you understand your rights and the risks.
• Make Sure Conditions Are Clear: If you need a loan or have another condition, make sure it is realistic and is written clearly in the contract.

In Short

You can back out of a property sale, but it has to be done for a valid legal reason, as outlined in the contract. If you do not have a valid reason, you could lose your deposit and face a lawsuit. The best way to protect yourself is to be careful, read everything, and get legal advice.