the GOOD, the BAD and the 72-HOUR CLAUSE
Buying or selling a home is an enormous experience for most of us and the house-hunting adventure can be exciting, but also super stressful. The big question for a buyer is: Which home is the best buy for us, and how will we pay for it? Buyers and Sellers understand that when it comes to buying property, most purchasers do not have the cash available and will need to secure a bond to be able to buy. Often the Purchaser wants to upgrade and pay for his new dream home by selling another property. In the property industry, you will often hear the phrases 'subject to bond' or 'subject to sale', referring to these suspensive conditions.
So, what are suspensive conditions?
In a nutshell, a suspensive condition is an uncertain future event which may invalidate the contract. This means that the contract will only be valid and proceed if specific conditions are met successfully. Let's say Buyer Jack makes an offer to purchase, Happy Street 7 for R2 million. "How will Buyer Jack pay?", you ask. Jack will need an approved home loan (bond) for R1 500 000 and the balance of R500 000 as well as the transfer costs that will come from the proceeds of the sale of his other property.
There is normally a time limit to a suspensive condition, for example, the offer will be subject to Jack getting a bond approval of R1 500 000 within 3 weeks and successfully selling his other property within 8 weeks. It means that if Jack cannot get a bond approval for R1 500 000 within the three weeks and sell his property within the 8 weeks, the contract will be null and void. This gives Buyer Jack the opportunity to make an offer without legal implications if his bond application is not successful, or he cannot get his house sold within the specific time agreed between the parties. Therefore, this protects Jack from having to be forced to buy something he cannot finance.
On the other side of the coin, that in essence, leaves the Seller with an uncertain offer. If Jack cannot deliver, it leaves the Seller with no contract, and he has lost two months in which he may have had to show other offers the door, because they could not wait. It may also be that the Seller signed an offer on another house, subject to the successful sale of his property, and simply cannot afford to lose 8 weeks of marketing.
That brings us to the 72-hour clause,
the other side of the suspensive condition coin, or sometimes called the continuous marketing clause.
The 72-hour clause gives the Seller the opportunity to continue with the marketing of his home while waiting for the Purchaser's suspensive conditions to be fulfilled. Although it can be stressful for the Buyer and Seller, it is also fair and helpful for both parties. In the current market, the financial impact of Covid-19 is reflecting on some Buyer's Credit Scores and impacting successful bond applications. The 72-hour clause gives the Buyer a better chance to get an offer accepted with suspensive conditions (e.g. Getting a bond), and it allows for the Seller to continue with marketing without having all the eggs in one basket.
During this time of waiting for the first offer's suspensive conditions to fall in place, the Seller can receive a second satisfactory offer. As soon as the second offer has all its own suspensive conditions already fulfilled (e.g., they already sold their house and have bond approval in place), the Seller (or his agent/attorney) is then entitled to provide the first Buyer with a written notice informing them that they have 72 hours to fulfill their own conditions. If the first Buyer cannot secure the means to buy the property within the 72 hours, the first contract is automatically void and is of no effect.
It is important to remember that not all 72-hour Clauses are the same. Make sure you consider the exact wording of the clause, as there are many variables from one agreement to the next. Even the term 72-hour clause can be misleading, since some agreements only work on three workdays and exclude weekends or official public holidays, while others will include the non-workdays.
For Buyer Jack the best advice would be to do everything in his power to get his bond approved and sell his house as soon as possible to secure his new home at number 7 Happy Street. Often Buyers don't realise that they need to provide the necessary documentation to the bond originator/agent as soon as possible, to have the best chance to secure the property, thinking they have lots of time to get the bond approval. That can change very quickly to just 72 hours if another purchaser (perhaps with cash available) comes into play, especially when you buy in a popular price pocket where few homes in the area are available in the market.
The 72-hour clause is an often-misunderstood piece of South-African legislation. It is therefore recommended to use a qualified and experienced estate agent to ensure a safe contract and who will be able to explain the specific 72-hour clause and its implications in plain language to both Buyer and Seller.
