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Importance of a properly worded bond clause in an offer to purchase
08 November 2017  | Greg Parker
 
The High Court Case of Phepeng and Another v Estate Late Ame Combrinck and Others (2017(4) 266(FB)) provides a good example of how important it is to ensure that an Offer to Purchase is drafted in a professional manner to ensure that the Offer records the terms agreed upon without any room for ambiguity.

Clauses making a transaction subject to a Purchaser's successful loan application are fairly common in Offers to Purchase of immovable property.  Most of these clauses are similarly worded and require a letter of offer, a quotation and a pre-agreement to be provided as proof that the Purchaser has obtained the required loan.

A bond clause is one inserted for the benefit of a Purchaser who needs to obtain a loan in order to pay the purchase price for the property he or she wishes to buy.  The clause is normally framed in a manner that renders the Offer to Purchase suspensive which means that the Offer to Purchase only becomes enforceable once it is fulfilled.

According to the bond clause in this case, the Purchasers had 30 days to obtain from a Bank a loan offer, quotation and pre-agreement.  Nowhere in the Offer to Purchase was it stated that these documents had to be lodged with the Seller.

The Purchaser duly obtained a loan offer from their Bank.  They thereafter accepted their Bank's offer in time and communicated this to the Seller through the bond originator.  Believing that the condition had been fulfilled, they asked the Seller for an extension of time to enable them to negotiate a better interest rate with another Bank.

The Seller denied this request, having decided that the bond clause had not been fulfilled in time (and the offer was accordingly void) by not having provided her with the required Bank documentation and indicated that there was a better offer on the table which she had subsequently accepted.

The Purchasers launched a High Court Application to interdict the transfer to the "new" Purchaser and to instead transfer the property to them.

Both the Seller and the Purchasers had different interpretations of the obligations imposed by the bond clause.  The Purchasers thought that they had fulfilled the condition whereas the Seller argued that they had not and that there was accordingly no valid sale as the Purchasers had not given her the loan offer, quotation or pre-agreement within the 30-day period.

The Court agreed with the Purchaser holding that in view of the particular wording of the bond clause, it was enough for the Purchaser to simply obtain the loan offer from a Bank without having to lodge or provide such documentation to the Seller.  The Court ordered the Seller to effect transfer of the property to the original Purchasers and not to the "new" Purchasers.

The lesson to be learned from this is that should you require a specific action from one of the parties as proof of fulfilment of a condition in an Offer to Purchase, the Offer to Purchase will explicitly have to make provision for such action and the wording of the relevant clause should be drafted accordingly.
 
 
 
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