Many individuals, often first-time home Purchasers, are so excited to purchase their very first Immoveable Property and eagerly conclude an Offer to Purchase (“hereinafter referred to as an “OTP”) without ensuring that they read and understand all terms and conditions contained therein.
Some Purchasers only realise at a later stage that they no longer wish to keep the property and wish to cancel the sale prior to transfer or discover too late that the Seller has fraudulently misrepresented the property. Cancelling an OTP is not as simple as entering into one. This article will point out important clauses to look out for in an OTP.
Important aspects to consider before signing an OTP
Purchase price and guarantees
Ensure that a fixed amount has been provided by the Seller and that there are no hidden costs. Unless otherwise agreed upon, the purchase price is payable in full on date of transfer of the property to the Purchaser.
Guarantees mentioned in the OTP refer to when the Purchaser furnishes the Seller with an undertaking from a bank that the purchase price will be paid in full once the property is registered in the name of the Purchaser. The Purchaser will then pay off this “mortgage loan” to the bank.
Inspection of the property
It is common practice that a clause be inserted in the OTP stating that the offer is conditional upon a satisfactory home inspection report. This will assist Purchasers ensuring that the Immoveable Property is in good condition and that there is full disclosure of any material defects.
If no clause making reference to a home inspection is contained in the OTP, it is recommended that the Purchaser request same to be inserted or alternatively request addendum to the Sale Agreement which makes provision for same.
Risk, rates, rental income and ownership
The Seller is responsible for any loss or damage caused before the Purchaser takes transfer of the property. The Agreement can be altered to state that the Purchaser is responsible for any loss or damage of any kind whatsoever from the date that the Purchaser takes occupation of the property.
Usually from the date of transfer the Purchaser will have all benefits attached to the property and all the risk of the property will pass to the Purchaser. The Purchaser will be liable for all rates and taxes and/or levies payable on the property from date of transfer and the will have to refund to the Seller, any amounts paid upfront by the Seller in respect of the rates and taxes and/or levies on the property.
The Seller will have the benefits of any rental income on the property, (if the property is let to a third party at the time of purchase), only once transfer takes place, although this can be regulated contractually between the parties. Ownership of the property takes place on transfer and not on occupation.
Registration and transfer fees
The Purchaser will be liable for payment of transfer duty and all costs and fees in connection with the registration of the bond and transfer of the property on demand by the Conveyancing Attorney.
Estate agents’ commission
The Seller will be liable for the payment of Estate Agents’ commission on demand by the Conveyancing Attorney, once the registration and transfer has taken place.
Occupation and occupational interest
Occupational Interest is more commonly known as Occupational Rent. The occupational interest can either be a fixed amount (usually it is calculated as either the amount of the Seller’s bond repayment on the property or 1% of the purchase price). It also can be an amount subject to escalation if registration of transfer has not taken place within a certain period (this may apply when the occupational interest amount is less than the Seller’s bond repayments).
If there is uncertainty about the occupation date, it is best to record in writing the latest date upon which the Purchaser is willing to take occupation of the property.
Breach of the offer to purchase
The OTP is a binding document once signed, and if either the Purchaser or Seller were to want to cancel or act to cause breach thereof, they could be held accountable for the breach of contract and could be penalised if the opposing party were to claim damages.
Most breach clauses make provision for arbitration which is extremely costly and neither party would want to be on the losing side as damages will be awarded to the aggrieved party which could also include specific performance. If specific performance is awarded, the party in the wrong will have to remedy same and comply with the OTP irrespective of whether they want to or not. This means that the party in the wrong will have to perform in accordance with the provisions of the OTP. The transfer and registration of the property will thus have to be concluded.
Considering the above, it is clear to see that it is extremely important for any first time Home Purchaser to ensure that proper inspection of the property is conducted before making an offer on the said property and/or signing any documentation, i.e. OTP, in relation thereto.
Purchasing a home is an important decision to make, as most individuals often invest a lot into the purchase and no one wants to own a defective property which may be difficult to resell in the future.
Contact SchoemanLaw, for assistance with all your property disputes.
© Shannon Vengadajellum – Schoemanlaw Inc. – 2018