Property sale agreements: exit option

2019-04-17 06:00

I WOULD like to buy a house and I have cash available for a deposit, but I need to finance the balance of the purchase price with a mortgage bond. I am just not 100% sure that I want to purchase this property. Would I be able to make an offer, but retain an option to exit the agreement if I so choose before the mortgage bond has been approved?

It is possible to make an offer on the understanding that you will “pay” your way out of the contract, should you wish to no longer purchase the property before the mortgage bond has been granted, by inserting a “Rouwkoop” clause (a common law term which directly translated means “to buy raw”).

This clause entitles you to “buy” yourself out of the agreement, by forfeiting the agreed deposit, or any specified portion thereof. The Seller then receives the agreed amount and you can walk away from the agreement without having committed a breach of contract. This clause safeguards you from the Seller trying to enforce the agreement and/or suing you in court for damages suffered as a result of the breach.

If you don’t exercise this right of withdrawal, the sale agreement still stands and the deposit will be set-off against the full purchase price of the property.

The “Rouwkoop” clause differs from a penalty clause, which allows for the forfeiture of a deposit by the Purchaser in favour of the Seller in cases of breach of contract due to failure in upholding contractual obligations.

It is usually these disputes, in which parties cannot agree on the forfeiture amount, that are referred to Court to quantify.

In terms of the Conventional Penalties Act, 1962, the Court may lower the agreed forfeiture amount if it determines that such amount is out of proportion to the damages actually suffered.

Always remember to consult with your attorney before signing any agreement. Kindly contact the offices of J Leslie Smith & Company should you need any assistance with your property transactions.

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