Deposit should be out of reach in a property dispute'

Deposit should be out of reach in a property dispute'

When the buyer and the seller in a property transaction are in dispute over an alleged breach of the terms of an offer to purchase, the seller's conveyancer cannot 'unilaterally' claim the buyer's deposit as commission or damages, or in lieu of damages, James Phillipson, a conveyancing attorney and director at law firm STBB Smith Tabata Buchanan Boyes, says.

The forfeiture of deposits is very controversial, because some conveyancers unilaterally enforce clauses that provide for this, Phillipson says.

'The problem is that, in most cases, there's a dispute between the parties, and the conveyancer cannot act as the arbiter in the matter.'
So, it must first be determined if the clause was breached and who was in breach before the forfeiture clause can apply.

'The conveyancer represents the seller, but has a duty of care to the purchaser because the purchaser is not represented.

'As soon as a conflict arises, the conveyancer needs to advise the purchaser to seek independent legal advice and then await the outcome of that conflict [resolution] process,' Phillipson says.

If, after taking advice, the buyer admits that he or she is the defaulting party, the conveyancer would be instructed by the defaulting party to appropriate or use all or part of the deposit as stipulated in the agreement, he says.

You would be the 'defaulting party' if you breached the contract by, for example, not paying transfer duty or your deposit on time, or failing to provide a guarantee within a stipulated period.

An offer to purchase in respect of property is a contract of 'standard' terms and conditions, as well as 'special conditions' and 'suspensive conditions'.

A suspensive condition is one where the validity of the contract is subject to the occurrence of a future event. If the condition is not fulfilled, the contract does not come into effect.

Phillipson says there is often confusion over what constitutes a suspensive condition and what constitutes a standard contractual term in the offer to purchase.

'If, for example, the seller must erect a security fence prior to registration of transfer, that is a standard term of the contract. But if the contract is subject to the seller erecting a perimeter fence on or before a certain date, that constitutes a suspensive condition,' he says.

The most common suspensive conditions concern the purchaser's ability to raise a mortgage bond of a specified amount within a certain number of days and/or the purchaser's ability to sell his or her property for a specified amount within a certain number of days or by a specified date, Phillipson says.

'Until a suspensive condition is met timeously, the contract effectively hangs in the air; [the contract] only becomes grounded or in force when the suspensive condition is fulfilled or waived. Only the person who stands to benefit from the suspensive condition may waive the condition. So, in my example, it would be the purchaser waiving the right to receive the benefit of the erection of the fence by the date stipulated.

'Sometimes, there's a grey area as to whether something was meant to be suspensive or not. For example, the contract states that the purchaser can obtain a bond. If it does not stipulate by when, and there is no mention of the words 'subject to', then there is ambiguity. If it is a suspensive clause and no bond is granted, the deal falls away. But if it is not a suspensive clause, it is arguable that the fact that the purchaser does not obtain a bond is fatal to the deal.'

Phillipson says that ordinarily, if the parties agree that a suspensive condition had lapsed or was not fulfilled, 'the deposit must be returned forthwith to the buyer without deduction'.

You must also beware of 'fictional fulfilment,' Phillipson says.

A common example is when a buyer signs an offer to purchase that is subject to him or her obtaining a mortgage bond, but the buyer changes his or her mind about the sale and makes no effort to obtain a home loan.

The buyer may think, 'I'll just let the bond clause expire, then surely I'm off the hook.' But this is not the case. The seller could argue that the bond clause was fictionally fulfilled and that the agreement can be enforced, because the buyer made no attempt to satisfy the condition. The buyer's application for a loan was not rejected by the banks; the buyer simply made no attempt to get the bond.

In order for a seller to claim damages from you, the seller has to prove that he or she has actually incurred a loss, Phillipson says.

'In other words, I can't say there's a term in the contract that allows me to take R250 000 in lieu of my damage if I haven't suffered any damage whatsoever,' he says.

The conveyancer has a duty of care to the buyer, and even if the conveyancer's client (the seller) demands that the conveyancer enforces the breach clause, the conveyancer would need to advise his client if, say, he wasn't in a worse position as a result of the buyer's breach.

Personal Finance


Denny Crane

Denny Crane
It's not me ... yet. Denny Crane from the TV series Boston Legal. Click on picture if you're not sure who he is!