It is a frequent occurrence that banks withdraw bonds that were approved prior to lockdown because of a change in the buyer’s financial position.
Flowing from this, the questions requiring answers are:
“If the deed of sale was conditional on a bond being granted, is the sale still binding after the bond has been withdrawn;
and, if so,
If the purchaser cannot then pay the purchase price, and the contract is cancelled as a result of this, will the purchaser be liable to pay damages, for example, the agent’s commission?”
The majority of deeds of sale are subject to the grant of bonds and these bonds must usually be granted on the bank’s standard terms and conditions. In their standard T’s & C’s, most banks reserve the right to withdraw the bond, right up to the date of registration.
A bond that is granted which includes this right of withdrawal is therefore granted on standard T’s & C’s and will be sufficient to meet the requirements of the bond clause in the deed of sale. Furthermore, once the bond has been granted and the condition in the deed of sale has been met, the later withdrawal of the bond will not turn back the clock. The sale will remain binding and it is the purchaser who bears the risk of the consequences of such a withdrawal.
After a purchaser has accepted a bond on these terms, the position is even clearer, as the purchaser has then accepted the bond on the T’s & C’s set out in the letter of grant. The purchaser has therefore given up the right to allege that the bond was not approved on standard T’s & C’s, and the purchaser again bears the risk that the bond might be withdrawn.
If a purchaser cannot afford to go ahead with the sale as a result of the withdrawal of a bond that was properly granted, the seller can use this default to cancel the agreement, and the purchaser can be held liable for damages. These damages might include the estate agents commission, wasted attorney’s costs and the difference in the purchase price if the property is then sold for a lower purchase price.
If there is a deposit, this may be used towards covering these losses, provided the purchaser agrees thereto. Where no such agreement exists, the matter will have to be resolved by an order of court.
In contract law, impossibility is an excuse for the on-occurrence of duties under a contract, based on a change in circumstances that makes performance of the contract literally impossible.
The fact that the suspensive condition has been fulfilled is a fairly simple question of fact and the contract thus normally comes into existence when the bond is approved.
The next possible test will be the question of the intervention of the unforeseen event, the corona virus, and whether this has made it impossible for the purchaser to perform as a result of no fault of his own. This is an interesting and controversial debate and will inevitable be the topic of case law in the future.
No definitive answer on the claiming of damages exist, at present and we wait with abated breath for the Courts to make a judgement hereon
The bottom line is that this is a risk every buyer must assume if he / she wants to buy property and finance it with a bond.
Should you require any more information on this matter, do not hesitate to contact us.
TONKIN CLACEY PRETORIA
012 346 1278