PP Smit Attorneys

It depends on which party is responsible.

It’s every home buyer’s worst nightmare. You find your dream home; your offer is accepted; and you pay a deposit—only for the sale to fall through before the property is transferred into your name. The question now is, where does this leave your hard-earned deposit?

The answer depends on the terms of the purchase agreement, and the reasons for cancellation. It is also largely dependent on which party is responsible for the sale falling through.

If you, the buyer, are in breach of contract, and the breach cannot be rectified within a stipulated time frame, you could lose your deposit. The seller has the right to use the deposit to cover any damages—such as legal costs or agent’s commission—that have been incurred as a result of the transaction falling through.

A variety of factors may be considered a breach of contract under property law, with the most common one being a homebuyer backing out after signing an Offer to Purchase (OTP).

What constitutes a buyer’s breach of contract?

While the sale of land in South Africa is governed by the Alienation of Land Act and must be in writing, the buying of a home is most importantly a contract.

The contract needs to list all conditions of the sale that are important to you so that there is no room for uncertainty. That can range from when occupation takes place and whether there is occupational rent or not, to whether the pool pump works or the retractable washing line stays.

The OTP or Sales Agreement usually also includes ‘suspensive conditions’—certain conditions that must be met in order for the contract to be enforced. The most usual one is whether you will need a home loan approved to secure the finance for the purchase.

Once the OTP or Sales Agreement is signed by all parties involved in the property transfer, it is considered binding, and both the buyer and the seller are obligated to fulfil their parts of the transaction.

This means that if the buyer pulls out after signing, they may incur significant penalties, including the loss of their deposit. However, if the reason for the sale failing through is due to any of the suspensive conditions not being met, the contract falls away, and they will get their deposit back.

Examples of suspensive conditions can include the requirement for a buyer to conduct a home inspection in a timely manner and be satisfied with the outcome—for example, checking the roof structure.

However, the most common suspensive conditions are the requirement for the buyer’s financing (home loan) to be approved, and the requirement that the buyer’s current property be sold first. This is known as a ‘subject to’ sale.

Buyers are strongly recommended to consult with a lawyer when including suspensive conditions, as these are there to protect the buyer to make sure they are ready to fully commit. Having those suspensive conditions in place can protect your deposit.

The last scenario is the seller breaching the contract—for example, breaching a warranty. Cancellation might not be the only remedy for the home buyer. However, if the home buyer is able to cancel because the seller breached the agreement, the home buyer will be entitled to their deposit back.

Your deposit is safe should the seller not fulfil their obligations.

Other reasons why a sale may fall through

The specific reasons for a sale falling through can vary, and these circumstances determine what happens to the deposit.

Instances where the buyer can forfeit the deposit if the sale falls through include:

When a buyer deliberately withdraws their home loan application: Regardless of whether the home loan is approved or not, withdrawing an application is a breach of contract if a home loan is needed to finance the purchase.

Buyer’s remorse: A buyer may get cold feet and choose to pull out after signing, without a legally permissible reason.

No attempt to meet suspensive conditions: While suspensive conditions are intended to protect the buyer, they will forfeit their deposit if no attempt is made to meet them. For example, if the purchase is contingent on a buyer’s home selling, they must prove that they have made efforts to market it.

Instances, where the deposit is refunded to the homebuyer, should the sale fall through:

Failure to secure funding: If the OTP is contingent on securing funding and their home loan application is denied for whatever reason, the deposit will be refunded.

Breach of contract by the seller: If the seller breaches the contract and the buyer cancels as a result of such breach, the buyer is entitled to their full deposit back.

Title deed and legal issues: If the transaction fails due to outstanding payments owed by the seller, or title deed disputes surrounding the property, the seller is in breach and the buyer will have their deposit returned.

Guaranteeing the safety of your deposit

While the vast majority of home sales are successful, it’s important to remember that there is always some risk that a sale may fall through. Both buyers and sellers should be aware of this possibility when entering into a property transaction.

The deposit—which is held by a conveyancing attorney, estate agent, or secure platform like Buyers Trust—is meant to serve as a show of the buyer’s commitment to the home purchase, and an assurance to the seller that the buyer will honour the agreement of the OTP.

Should the sale fail and the buyer is not at fault (for example, a condition precedent isn’t met), the buyer needs to be 100% assured that the deposit will come back straight to them, together with interest for the time it was invested.

Written by Jackie Smith
Jackie Smith is the head of Buyers Trust.

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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Carla Cloete

Director | Attorney, Conveyancer & Notary | LLB

Carla obtained her LLB at the North West University, Potchefstroom Campus in 2015. She completed her articles in 2017 with Brits Dreyer Inc in Bellville. She is an admitted Attorney, Notary and Conveyancer. After her articles she relocated to Kimberley where she worked as a professional assistant in the Conveyancing department of Van de Wall Inc. Coming back to her Western Cape roots, she now joins the PP Smit team as a professional assistant.

Carien Hamman

Attorney & Notary | LLB

Carien grew up and matriculated in the picturesque town of Ceres, whereafter she furthered her studies at the University of Stellenbosch and obtained her LLB degree in 2015. She completed her articles at VanderSpuy Cape Town in 2017 and stayed on as an associate litigant after being admitted as an attorney during early 2018. Carien loves the countryside and thus ventured back to Ceres where she joined Joubert Van Vuuren Inc. for a year. However, when she was presented with the opportunity to enjoy both the country- and the seaside, she couldn’t resist and joined PP Smit Attorneys at the beginning of 2022 as an avid litigator. When she is not at the office, Carien enjoys long walks, wine tasting, and exploring the area with her family and friends.

Harmann Potgieter

Attorney | LLB | NQF 7

Harmann graduated in 2018 with an LLB degree from the North-West University’s Potchefstroom Campus. He went on to study and grow in various fields, including doing a course on the Consumer Protection Act and a course at the University of South Africa where he obtained his NQF 7 Certificate in the Administration of Deceased Estates.

Harmann completed his articles of clerkship at Swemmer & Levin under the supervision of Mr Richard Phillips. After being admitted as an attorney in 2020, Harmann continued with PP Smit Attorneys as a professional assistant in the deceased estates department as well as the litigation department. He loves to study, possesses a deep curiosity about the world, and is dedicated to giving back to the community.

Andre van der Walt

Director | Attorney | LLB

Andre graduated in 2015 with an LLB degree from the University of Pretoria. He later went on to obtain his NQF 7 Certificate in the Administration of Deceased Estates from the University of South Africa, which allowed him to further his career in deceased estates and the drafting of wills and trusts. Andre served his articles at Barnard & Patel Attorneys under the supervision of Mr YAS Patel. After being admitted as an attorney in 2016, he continued working at Barnard & Patel Attorneys as a professional assistant in the deceased estates department.

Andre joined Van Rensburg Attorneys in 2019 and was head of the deceased estates department until 2021. He then received the opportunity to move to the West Coast, where he joined Swemmer & Levin Attorneys, and not too long after that, he grabbed the opportunity to work at PP Smit Attorneys. Andre loves travelling and enjoys the beauty that our country has to offer with his friends, family, and loved ones.

Jandré Smith

Director | Attorney | LLB

Jandré grew up and matriculated in the small Klein Karoo town of Oudtshoorn. He furthered his studies at the North-West University in Potchefstroom, obtaining his LLB degree during 2015. He completed his articles at Swemmer & Levin in 2017 and was subsequently appointed as a professional assistant. In 2020, Jandré was promoted to the position of director of the firm, where he practices in the Litigation department. Jandré additionally joined the company of PP Smit Attorneys during the same year. When not practising law, Jandré is an avid sports fan. He has a passion for nature and enjoys camping, trail running, and mountain biking with his family.

Richard Phillips

Director | Attorney | Bcom & BProc

After matriculating at Paarl Boys’ High School, Richard completed his BCom and BProc degrees at the University of Port Elizabeth. He served his articles with Van Wyk Fouchee in Paarl and quickly developed an affinity for litigation. Richard has always had a deep love for the ocean and when he was presented with an opportunity he joined the company of PP Smit Attorneys during 2006. Richard specialises in general litigation and divorces. When he is not in the office or with his family, he tries to spend as much time as possible in or on the water.

Johann Maree

Director | Attorney | BA. LLB

Johann matriculated at Oudtshoorn High School and attended Stellenbosch University, where he obtained his BA Law and LLB degrees. Following his studies, he worked for three years as State Prosecutor at the Magistrate’s Court in Cape Town. Johann completed his legal training with the State Attorney in Pretoria and then moved to his hometown, Oudtshoorn, where he worked as a lawyer for a year. In 1983, he moved to Vredenburg and joined Swemmer & Levin, where after he joined the company of PP Smit Attorneys during 2006.. When he is not in the office, Johann enjoys cycling and in his earlier days, he used to be a long-distance junkie.

Pieter Smit

Director | Attorney & Conveyancer | BA. LLB

Pieter obtained his BA Law degree from Stellenbosch University in 1995 and his LLB degree from the North-West University in Potchefstroom in 1998. He served his articles at Marais Muller Attorneys from 1998 to 1999 and was admitted as an attorney in 2000 and as a conveyancer in 2002. Pieter is the founder of PP Smit Attorneys, which opened its doors in 2004. He also became a director of Swemmer & Levin in 2006. Pieter loves the outdoors and participating in all forms of sport, including tennis, golf, fishing, spearfishing, scuba diving, and hiking.

Jan Fourie

Director |  Attorney, Notary & Conveyancer | BA. LLB

Jan graduated in 1974 with a five-year BA LLB degree from the University of Stellenbosch, whereafter he was admitted as an advocate and prosecuted as such in the Cape Town and Wynberg Courts. In 1974, he joined Swemmer & Levin as the Candidate Attorney of Mr Levin (founding member) and was admitted as an attorney on 7 April 1976, as a conveyancer on 11 January 1978, and as a Notary on 19 December 1984. Since 1974, he has served in various committees, including the West Coast Chamber of Commerce, the Vredenburg School Committee, and the Malgas Lions Club. In 2004, he also joined the company of PP Smit Attorneys.

Furthermore, Jan was the author of the first bilingual law book, The New Debt Collecting Procedures (Die Nuwe Skuldinvorderingsprosedures), which was used by all the Magistrate Courts throughout South Africa. With the founding of the Small Claims Court in Vredenburg, Jan served as one of the first Commissioners.