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Beware of buying a house with a pro forma contract
24 August 2014
 

You’ve received a fantastic offer on your house and, very satisfied you, as the seller, sign the sales agreement that your realtor has drawn up and on which the signature of the buyer already blossoms.  Thank goodness the sale is now valid and binding – or is it? 

When you place your house on the market, you’ll suddenly realise how many realtors are active in your area. Almost daily a new realtor will contact you to ask if they can’t also help you to market your house. And every realtor will have their own pro forma sales contract that will hopefully soon be a signed contract between you and the buyer. 

With the legion of legal requirements and contractual principles applicable to a sales contract of immovable property, you have to ask yourself if this pro forma sales contract would truly be valid, binding and enforceable once you sign it.

Most realtor pro forma sales contracts are prepared by a legal advisor and will therefore meet the general legal requirements. But did you read the contract thoroughly? Do you understand all the conditions and provisions? Do you know what it means if the contract refers to the Alienation of Immovable Property Act or to the provisions of the Consumer Protection Act? And what does “voetstoots” really mean in practice, and how does if affect your transaction?

Apart from the requirements of the sales contract itself, there are also other principles playing a very important role in sales contracts of real estate specifically, as well as contracts in general. Is the buyer that has signed married in community of property? If so, has the spouse of the buyer given her written consent in terms of section 15 of the Matrimonial Property Act? Is the buyer a Closed Corporation, Trust or Company? In that case, has the entity already been established? Does the entity’s constitution or founding documents allow for it to buy real estate? Who may sign on behalf of the entity and is there a legally binding decision in place?

One of the provisions of the contract possibly determines that you as seller “guarantees” that there are no building restrictions applicable to the property – is it the case? Are there approved building plans for the additions to the house? Are there perhaps servitudes registered against your property? And does the title deed of your property contain any conditions that you – and the buyer – have to be aware of? Certainly you’ve read through your title deed, haven’t you?

The sales contract may further determine that the buyer must deliver a guarantee, for example “20 days” after accepting the offer. As of when is this time period calculated? Do we include the day of acceptance, or not? Do “days” mean only week days or does it include weekends and public holidays?

Does the home have electric fencing? Has provision been made in the contract as to who will be responsible for the required certificate?

Then it also often happens that pro forma contracts make provision for open spaces for additional information and the deletion of irrelevant provisions. Do theses spaces have to be struck through? When and who must initialise them? What happens when irrelevant provisions aren’t taken out?

So many questions and so few answers. This article is by no means intended to address all the requirements of a sale contract of immovable property, but rather to make sellers and buyers aware that it’s preferable to discuss any sales contract with an attorney. Too often our courts hear cases where the buyer or seller dispute the validity of a sales contract, precisely because the contract did not comply with the basic legal requirements and principles.