Many sale agreements are subject to the successful sale of the buyer’s house; but what does that actually mean, legally?

Does it simply mean that the buyer’s house has been sold? That the offer to purchase/sale agreement has been merely signed by all parties but that various normal conditions and more important the suspensive conditions (for example bond finance etc) are still unfulfilled?

Or does the word “successful” in “successful sale” imply that the prior sales agreement has reached a stage where all suspensive conditions have been fulfilled; meaning that the  contractual obligations have to be fulfilled by the parties.

Or does the word “successful” imply that all suspensive conditions have been fulfilled, guarantees are in place & costs are paid. Implying that transfer is imminent and that it is very unlikely that something can go wrong to prevent eventual transfer.

Or does the word “successful” mean that all ALL conditions have been fulfilled and that final transfer has taken place to that buyer (the buyer of the buyer)at the Registrar of Deeds.

All of the above views have merit and all of the above views could be argued to be legally correct.

In Terry v Solfafa Free State High Court (2263/2019 ZAFSHC 143 )(29 August 2019)the sale agreement was subject to the successful sale of the buyer’s property:

“The second suspensive condition in the agreement requires the successful sale of the property of the Applicants, situated at Langenhovenpark, for an amount of R 1 900 000.00, or lesser amount that may be acceptable to the Applicants, within sixty days after the date on which the agreement was signed by the First Respondent”

The buyer’s house was indeed sold but not transferred in this 60 days

The Seller contended that the contract had lapsed due to the non-fulfilment of this suspensive condition. The Seller held the view that “successful sale” meant final transfer at the Registrar of Deeds.

The crucial question was thus what “successful sale” means.

The judge referred to a previous case and then stated:

” As far as the present case is concerned, I cannot think for a moment that the parties had the intention that the Applicants were to find a purchaser for the property, that they had to sign a deed of sale after a purchaser was found, that possible suspensive conditions in that deed had to be fulfilled, and that the registration of transfer into the purchasers name, all had to take place within the limited period of 60 days only. I therefore find that the phrase “successful sale” in the present agreement means nothing more than the successful signing of a deed of sale”.

This case thus clearly answers the question and clearly states that (should nothing more be said in the agreement!),that “successful sale” simply means the successful signing of the sale agreement.

The position taken by the learned judge Loubser J is  correct and in most situations it should result in justice being done, but I do think that the ruling must be seen in its  context and that it is not a rule which covers all similar situations.

If you look at the contract in question it is clear that the judge felt that 60 days does not represent enough time to get finance, do all conveyancing actions and have registration. From my own experience in conveyancing this is correct; meaning 60 days are not enough to reach registration…. in most cases. The interpretation of “successful sale” thus hangs on a very important contractual timeframe of 60 days.

Would the judge have seen it differently if it was 90 days or 120 days? Where registration is very possible!

The interpretation of the judge of what the parties’ intention could be is thus an opinion based on practical life experience; meaning that 60 days would not be enough for registration; so the parties must have agreed on something else; and that something else is then reduced to the simple signing of the agreement.

Would the buyer have held the view of a “successful sale” being the mere signing of his sale agreement, if his transaction was not proceeding? In the case at hand the buyer’s buyer did obtain a loan and did proceed with that transaction. If for example that buyer’s buyer did not obtain finance or simply rebuked the contract; leaving the buyer unable to perform in the contract in question; I am convinced that the buyer would have shared the seller’s view that no “successful sale” position was reached. To put it differently the buyer’s view on what successful sale was, was strongly motivated by the fact that he had a “successful sale”. A sale that enabled him to proceed with the buying of the new property.

The judge correctly makes it clear that “in the present agreement” the words successful sale means the simple signing of the prior sale agreement. The South African courts have in the past followed a casuistic approach in many court cases. Casuistic means that on the facts of that particular case this is the law; not trying to create a rule in law which has general application. I am of the view that this was also the case here ;meaning that for these facts this is the correct position. With a little different state of affairs the answers could be different.

Due note should be taken by all draftsmen & -women that the simplified use of “successful sale” in offers to purchase/sale agreements should be accepted to mean the simple signing of a sale agreement by the buyer and his buyer.

Investigating questions should always be asked by the person drafting the agreement  to the parties. What happens if your house is sold but the deal fails? What time frames are fair to all? The contract must then be revised to reflect those wishes! The contract could  for example grant the buyer 60 days for sale (simply signature of a sale agreement),30 days for fulfilment of suspensive conditions and 30 days for registration.

The practical problem is that such time frames do not sound good a seller! It is simply too long for most people even though it is realistic. That means that many  contracts will in future  remain with a simple 60 days for “successful sale”. Why? Because it sounds reasonable. The practical consequences of the buyer simply signing the sale of his own property (suspensive condition thus fulfilled!) which agreement then later falls through is rather not dived into. At the end of the day most sellers will “willingly” withdraw from the sale as it would be clear that the Purchaser is in no position to perform. This “willing” withdrawal of the seller does not change the fact that the sale agreement could actually have been drafted properly!

I have personally experienced numerous transactions in my conveyancing career where a string of connected transfers were simply “juggled” by all parties involved (conveyancers, agents, sellers, purchasers etc) to keep the string “alive”. Meaning by addendums and corrections etc etc. This is all well as long all parties essentially want to proceed! The moment that someone wants to withdraw for whatever reason contractual issues like these may grant such person a golden opportunity to withdraw.

Due care must thus(as always) be taken with the drafting of a contract and especially with suspensive conditions like these!

Jacques van der Merwe

Jacques van der Merwe Maja Inc.

9 August 2020

*The views expressed here are my personal views on this theme and are not to be used  or copied in any manner. It may not be interpreted as anything else ,as my personal opinion. It is not legal advice in any case. Should you wish to obtain specific advice on any matter this should be done by taking up personal contact with myself or any one of our attorneys.