What if a seller gets a bet­ter of­fer?

Lesotho Times - - Property -

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.

— Prop­erty24

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