Buying or selling property is one of the most exciting
experiences for most individuals. However, one should take care not
to sign an offer to purchase without fully understanding the
implications of all the provisions contained in the agreement. The
importance and effect of the so-called suspensive – and
resolutive conditions contained in agreements are discussed in this
article.
A suspensive condition is a condition which suspends the rights and
obligations (or the coming into operation of the entire agreement),
until a certain future event occurs. Upon the occurrence of the
event, the suspended part of the agreement (or the entire
agreement) is brought to life.
The following conditions are common examples of a suspensive
conditions:
- A condition requiring the purchaser to obtain approval of a loan from a financial institution, within a specified period, to finance the acquisition of the property.
- A condition that provides that the buyer first needs to sell his existing property.
Such conditions protect both the buyer and the seller. The buyer
would be able to walk away from the agreement without any
repercussions if he does not qualify for the loan or does not
manage to sell his property. Similarly, the seller will be able to
proceed with marketing his property and not be bound to an
agreement with a purchaser who is unable to fulfil his
obligations.
If the suspensive condition is complied with timeously, the
agreement shall be deemed to have been in force from the date of
conclusion thereof.
A suspensive condition is usually imposed for the benefit of either
the seller or the buyer, who may waive the condition prior to its
expiry date. In practice, should the purchaser obtain some other
means of securing the purchase price, without the need for
assistance from a financial institution, the purchaser may waive
the benefit afforded to him by the suspensive condition, upon which
the agreement will become unconditional and of full force and
effect.
The due date for fulfilment of a suspensive condition is of utmost
importance. Our common law provides that a suspensive condition
which is not fulfilled by the specified date, has the effect that
the whole agreement lapses, even if both parties had already
performed in terms of the agreement after the fact. As such, the
party who had already performed in terms of the agreement cannot
claim any specific performance and/or contractual damages from the
other party. If the parties wish to continue with the sale, a new
agreement will have to be concluded.
To avoid the adverse legal implications of a suspensive condition,
it is advisable that the clause should be constructed in such a way
that it allows the parties to extend the time period within which a
suspensive condition must be fulfilled before the lapsing of the
specified time period.
A resolutive condition can easily be confused with a suspensive
condition.
A resolutive condition is an arrangement between the parties that
the agreement of sale will terminate on the happening of a certain
future event. Unlike with a suspensive condition, the agreement is
immediately binding with all the rights and obligations contained
therein from the day of conclusion thereof. If the resolutive
condition is fulfilled, the agreement will terminate
retrospectively.
A practical example of a resolutive condition which stipulates
that, if the seller does not provide proof that the building plans
for the property sold have been approved by the relevant
authorities by a specific date, the agreement will terminate. The
fulfillment of such a condition renders the agreement null and
void. In other words, if the seller does not provide the said proof
by the agreed date, all the rights and obligations of the parties
shall immediately cease to exist, and the parties may then need to
be restored to their respective pre-contractual states.
As the legal implication of a resolutive condition is such that may
require the restoration of parties to their pre-contractual state,
it is recommended that such conditions be avoided as it may be
quite difficult to unbundle and quantify actions already performed
by the parties. If avoidance is not possible, one should consider
using such condition in an agreement where the rights and
obligations that may need to be performed, prior to the specified
date, are rather minor and with no major financial
consequences.
It is important that buyers and sellers should carefully read the
provisions of the sale agreements they wish to enter. It is
advisable that professional advice be sought to obtain a clear
understanding of the extent of all legal implications and to avoid
unintended consequences.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.