Suspensive Clause in Deed of Sale

 The contents of any agreement are commonly referred to as “terms”, “conditions” or “stipulations”. Contracts for the purchase of fixed property (the Offer to Purchase and once accepted, the Deed of Sale) normally contain one or more “suspensive conditions”. These are conditions that must be fulfilled before a contract will become operative and the transfer process can commence. In the event that a suspensive condition has not been fulfilled by the cut-off date, the contract automatically lapses and no cancellation process is required.

The most common suspensive clauses are those that provide for:

• The obtaining of a mortgage loan by the purchaser;
• The sale of the purchaser’s property.

Mortgage loan

It is critically important that the suspensive clause providing for the obtaining of a mortgage bond by the purchaser is properly worded. That will be the case if the clause clearly –

1. stipulates the time within which a mortgage loan has to be obtained; 

(to this end, bear in mind that stipulating a specific date is preferable to stipulating a number of days due to the general uncertainty surrounding the correct way of reckoning time in the latter case)

2. describes what is meant by “obtaining” a mortgage bond;

(in a recent High Court case it was held that the use of the word “obtain” meant that the purchaser had to actually conclude a binding agreement of loan with the bank. Consequently, all the required loan documents had to be signed by the purchaser to the satisfaction of the bank prior to the cut-off date of the suspensive clause. The purchaser was under the impression that he had fully complied with the clause on having received written confirmation from the bank that a bond had been approved in principle. In fact, this has always been the general assumption amongst contracting parties and estate agents)

3. explains the procedure to be followed by the purchaser when notifying the seller that a mortgage bond has been obtained and that the suspensive condition has therefore been fulfilled;

4. stipulates that in the event of the purchaser’s failure or inability to obtain a mortgage bond by the cut-off date, the contract will lapse and be of no further force or effect.

Sale of Purchaser’s Property

It is similarly important that the clause rendering a contract subject to the sale of the purchaser’s property is properly worded. That will be the case if the clause clearly stipulates –

• the time within which the purchaser’s property has to be successfully sold and transferred;

• that in the event of the purchaser’s failure or inability to successfully sell and transfer his property by the cut-off date, the contract will lapse and be of no further force or effect.

Once again, remember that stipulating a specific date is preferable to stipulating a number of days due to the general uncertainty surrounding the correct way of reckoning time periods in the latter case.

It is also important to bear in mind that, should the words “and transferred” be omitted from this clause, it may well happen that a purchaser who manages to sell his property before the cut-off date nevertheless finds it impossible to transfer the property in time. He could then be compelled to take transfer of the property that he had bought without having at his disposal the proceeds of the sale of his other property.

The so-called “72-hour clause”

Such a clause is normally inserted for the benefit of the seller in an Offer to Purchase (“OTP”) that is subject to one or more suspensive conditions, i.e. subject to the acquisition of a mortgage bond and/or the sale of the purchaser’s other property within a certain time frame.

We have already learnt above that failure on the part of the purchaser to fulfil any one or more of the suspensive condition/s on or before the cut-off date will simply render the OTP of no further force or effect. It will also be incapable of being revived unless extended by agreement between the parties prior to the stipulated cut-off date.

However, for a seller it means that the property has effectively been withdrawn from the market for an indefinite period of time during which other serious buyers may have been lost. That is why, in the pre-printed OTP-forms of most estate agencies, provision is made for the “Continued Marketing” of the seller’s property in anticipation of fulfilment by the purchaser of the suspensive condition/s.

In the event that a second, better offer is received as a result of such continued marketing, the seller will be entitled to give written notice to the purchaser who had made the first offer, to either fulfil the suspensive conditions or waive them within 72 hours (or 3 days).

In the event of fulfilment or a waiver of the suspensive conditions within 3 days, the first OTP will become unconditional and the transaction will be proceeded with. In the event of failure on the part of the first buyer to either fulfil or waive the suspensive condition/s within 3 days, the seller may consider the first OTP as lapsed and of no further force or effect. The seller is then free to accept the second offer which would normally be an unconditional offer. The transfer process can then immediately be commenced with.

The above is a simplified explanation of the 72-hour clause, the wording of which is extremely important due to the technical nature of its implementation and the correct execution thereof. It is therefore advisable that parties obtain appropriate legal advice before presenting or accepting an OTP that contains a 72-hour clause.