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The Offer to Purchase Agreement – A brief overview (Part 2)

We continue our discussion on the most important clauses that should be considered and contained in an Offer to Purchase (OTP) agreement. The previous article briefly discussed the parties, purchase price, and suspensive conditions.  If you missed this article, kindly follow this link to our website: https://oreillylaw.co.za/the-offer-to-purchase-agreement/ This article will focus on the continued marketing (also known as the 72 hours), occupation, and electrical compliance certificates clauses.

1. Continued Marketing

 

When the buyer and seller sign an OTP that is subject to a suspensive condition, the seller will be bound to the agreement for the period that has been granted for the fulfilment of the suspensive condition.

 

This entails that, for this period mentioned above, the seller cannot accept any other offers and cannot sell the property to any other person.  To afford the seller protection against losing out on a potential sale, parties will sometimes include continued marketing, also known as the 72-hour clause in the OTP.  Such a clause will read along the following lines:

 

“Should the Seller at any time before fulfilment of the suspensive condition receive another bona fide offer which he in his sole discretion wishes to accept, then he shall notify the Purchaser herein, in writing, of his intention to accept such offer (a copy of such Offer shall simultaneously be shown to the Purchaser) and the Purchaser shall have seventy-two (72) hours from receipt of such notification (excluding Saturdays, Sundays, and Public Holidays) within which to waive, in writing, the benefit of all suspensive conditions of this Agreement after which this Agreement will become finally binding. Should the Purchaser fail to waive the condition, this Agreement will lapse and be of no further force or effect.”

 

This clause will generally come into effect where the seller obtains a cash offer that is not subject to finance approval or has less risk and wishes to accept the “better” offer.  The buyer will then have to decide whether he will waive the benefit of the suspensive condition, thus, in essence, agree to proceed with the sale without any guarantee that his finance will be approved, or, if no indication on finance approval exists, to walk away from the agreement instead.

 

Buyers are not always keen on the 72-hour clause, as it places additional pressure on them to obtain finance approval and risk going through the whole finance application process, only to lose out on the sale to a cash buyer.  Therefore, both seller and buyer should be informed about the effect of the 72-hour clause and how it can influence their position in the sale transaction.

 

2. Occupation

 

The buyer often requires moving into the property they intend to buy before the transfer occurs.  This can be due to various reasons, such as a current lease agreement that will expire or because of earlier occupation by a third-party buyer who purchased the buyer’s property.

 

Whatever the reason, early occupation can be a risky decision for the seller, primarily if the buyer has not yet provided guarantees.  It will be beneficial to discuss the risk factors with your conveyancer before taking or granting early occupation. It can sour the transaction if the buyer takes occupation, only to move out later if they fail to render guarantees timeously.  The party enjoying occupation while the other is the registered owner of the property will generally be liable for occupational rent.

 

A classical occupational rent clause will read along the following lines:

 

“If the date of occupation and possession does not coincide with the date of transfer, the party enjoying occupation and possession of the property while it is registered in the name of the other party, shall in consideration thereof and for the period of such occupation, pay to the other party occupational rental of R 10 000.00 (TEN THOUSAND RAND) per month or a pro-rata share thereof for any portion of a month.”

 

Usually, the buyer will pay the occupational rent to the conveyancer, who will transfer occupational rent to the seller, although this could also be arranged between the parties directly.  For the sake of security and confusion, we suggest that your conveyancer deals with all financial aspects pertaining to the transfer, including receiving and making payments, as well as calculating pro-rata occupational rent.

 

3. Electrical Compliance Certificates (COC)

 

The Electrical Installation Regulations regulate electrical certificates. The Regulations provide that every user or lessor of an electrical installation must have a valid certificate. The seller must give the buyer an electrical certificate not older than two years when a property is sold.

 

These certificates are always required before lodgement in the Deeds Office.

 

Many disputes, which have caused long delays in the transfer process, have occurred due to either an invalid COC or discrepancies regarding the correctness thereof. For more information on what a correct COC will entail and how to resolve disputes surrounding COC’s, kindly read the article written by us on this critical topic:  https://oreillylaw.co.za/electrical-certificate-of-compliance/

 

So, what about solar installations?  It is important to note that nothing in the legal definition of an electrical installation precludes a solar installation. Therefore, a COC will still be a requirement in instances where solar power is used. Furthermore, the prescribed certificate of compliance as provided in the Regulations generally include solar panel installations.

 

It would be beneficial for the Regulations to be updated accordingly without much certainty surrounding them. In the interim, however, a reasonable inference may be drawn that COC’s should be obtained in instances of solar power being used.

 

As a final note on certificates, please also note that the Municipality of Cape Town, apart from COC’s, electrical fence – and gas certificates, also requires a water certificate, plumbing certificate, and a beetle certificate before the transfer of ownership can take place.

 

The beetle certificate is not a legal requirement but is still a practice rule and included in most OTPs of property in the Western Cape and KwaZulu Natal.  A standard beetle clause will read along the following lines:

 

“The seller shall arrange at his/her expense to have the accessible timbers on the property, inspected by a qualified wood borer inspector, for infestation by all wood-destroying insects, and for the replacement and treatment of any timbers found to be infested, in accordance with the recommendations specified by the inspector.”

 

This is all for part two, but please keep a lookout for the final part 3 on OTP’s.