Bond Clauses: Beware the Deadlines!

“I love deadlines. I love the whooshing noise they make as they go by.” (Douglas Adams)

Here’s yet another reminder from our courts on the danger of not complying strictly with every provision in a property sale agreement. Don’t be like Douglas Adams and listen to the deadlines go whooshing by – missing a property sale deadline is a mistake, probably an expensive one. The deadline set by every bond clause is no exception…

Sale’s a dead duck. Who gets the R600,000 deposit?

A property sale agreement contained a standard “suspensive condition” in the form of a bond clause making the sale conditional upon the buyer obtaining R1.5m in bond finance by a specified date. The buyer could waive the benefit of this clause, and if it wasn’t fulfilled or waived by the deadline date the sale would become null and void – in which event the deposit, with interest, was to be repaid to the buyer within 5 business days.
The buyer paid the R600,000 deposit to the estate agent, but had difficulty in raising finance and (before the deadline expired) asked for more time to get the necessary bond approval. Both parties assumed that an extension of the deadline had been validly granted, but in fact there was never any compliance with the requirement in the bond clause that any extension be by “written agreement”. In other words, the sale had lapsed, but neither the seller nor the buyer realised that – they both thought they still had an agreement in place.
Two months later, thinking that the sale was still alive and well, the buyer signed a waiver giving up the benefit of the bond clause and stating that the agreement was no longer subject to the suspensive condition.
Another two months down the line the buyer told the seller he was no longer proceeding with the purchase (his wife had in fact bought another property in the interim). The seller took that as a repudiation of the contract and cancelled the sale.
The buyer demanded his deposit back. The seller wanted it forfeited to him. Off to the High Court they went.

The law, and the result

The general rule in our law is that no agreement comes into existence unless and until all suspensive conditions are fulfilled. So the seller has no claim against the buyer unless either the sale agreement provides for such a claim (unlikely) or “where the party has designedly prevented the fulfilment of the condition.”
That, in lawyer-speak, is the legal principle of “fictional fulfillment of a suspensive condition”. In lay terms – the law protects the seller and doesn’t allow the buyer to escape from the sale by deliberately ensuring that he doesn’t get a bond.
The seller argued that that was exactly what the buyer in this case had done; that he had breached the agreement and had deliberately frustrated the fulfilment of the bond clause.
On the facts however, the Court held that both seller and buyer had remained committed to the sale, blissfully unaware that in law the sale agreement was already a dead duck. The buyer only decided to get out of the agreement after it had already lapsed.
The buyer gets his deposit back with interest, and the seller is left with an unsold property and a large legal bill.

Buyers – your risk

As the Court put it, what saved the buyer in this case was a lack of evidence that the buyer had – by commission or omission – prevented the necessary finance from being granted. In other words, you risk being sued (which will put your deposit at risk) if you don’t make a genuine effort to get the necessary bond finance by the due date.

Sellers – keep an eye on the bond clause deadline

The seller on the other hand is left to lick his wounds after all the delay, cost and effort this dispute has caused him. He could have avoided all that pain by keeping an eye on the due date and ensuring that the deadline extension was agreed to in writing before it expired. As the Court pointed out “The contract was readily available to all involved and the requirements of clause 6.3 pertaining to an extension were available for all to read. A simple investigation would have revealed what was required.” (Emphasis added).