What if a seller gets a better offer?
MOST standard property agreements of sale contain a “72-hour clause”, sometimes also labelled a “continued marketing clause”. For the purposes of this article, we shall refer to it as a 72-hour clause.
This article seeks to explain to buyers and sellers the essence and operation of this clause commonly found in standard property sale agreements.
Many agreements of sale in property transactions contain suspensive conditions, which make the agreement subject to the happening of a future uncertain event. If the suspensive condition is not met, the agreement will not be binding on the purchaser.
Common examples are, “this agreement of sale is subject to the purchaser obtaining a bond”, or “this agreement of sale is subject to the purchaser selling his/her existing property”.
A suspensive condition contained in an agreement of sale is generally to the benefit of the purchaser as it puts the transaction on ice while waiting for the happening of the event, i.e. while the purchaser is applying for bond finance or attempting to sell his home.
It allows the purchaser to conclude an agreement with the seller whilst not putting himself (the purchaser) at risk of being held liable to the terms of the agreement if he does not get a bond or does not manage to sell his property.
From a seller’s point of view, a sale with a suspensive condition takes the property out of the market and binds the seller to the agreement of sale until such time as that uncertain event happens or the afforded time period lapses.
For example, if an agreement of sale is entered into “subject to the purchaser obtaining a bond within 30 days”, then the seller is tied into that agreement until either the event happens (i.e. the bond is granted), or until the event does not happen within the 30-day period, in which case the agreement will lapse and no longer be of any effect.
A 72-hour clause is a mechanism to alleviate this disadvantage to the seller. It allows the seller, while waiting for the fulfilment of the suspensive condition by the purchaser, to continue to market his property for sale (during the suspensive condition period).
It provides that, should the seller receive another, unconditional offer or other more favourable offer (depending on the wording of the 72-hour clause) that the seller wishes to accept, then that seller shall be entitled to accept such offer provided that the seller gives the purchaser notice of receipt of such competing offer, and allows the purchaser 72 hours to decide whether to waive the “subject to sale” condition and make the agreement binding.
To break down the components of the clause, we paraphrase the mechanism as follows as it applies in a sale agreement that is subject to the purchaser obtaining bond approval by a certain date:
After concluding the sale agreement with Buyer 1, which contains a suspensive condition, and pending fulfilment or non-fulfilment of the condition, the seller will be entitled to continue marketing his/her property and receive unconditional agreements of sale (i.e. agreements that are not suspensive) or more favourable agreements of sale (depending on how the specific 72-hour clause is worded).
In the event of the seller receiving such further offer from Buyer 2 which he/she wishes to accept, then the seller shall be entitled to accept such offer provided:
2.1. That he/she notifies Buyer 1 (usually in writing) that he has received another offer, and provides Buyer 1 with a copy of the new offer.
2.2. Buyer 1 is then given a period of 72 hours (or three days depending on the wording of the clause) within which the purchaser is allowed to waive the right to the suspensive condition. For example, if an agreement of sale was subject to a bond, that purchaser would be entitled to waive the bond condition.
In the event of Buyer 1 waiving the right to the suspensive condition, then that agreement of sale will become immediately binding on both the seller and the purchaser. The purchaser will then have to make payment or provide guarantees for all of the amounts due in terms of the agreement as if it were an unconditional agreement.
In the event that Buyer 1 does not waive his/her right to the suspensive condition within the 72 hours, then that first agree- ment will lapse and be of no further force or effect. The second offer (i.e. the unconditional or more favourable offer) will then become the effective agreement as between the seller and Buyer 2.