Kruger Incorporated | Attorneys Notaries Conveyancers
Over the past few years, the property market has changed by leaps and bounds, and it is changing even faster. In this ever-evolving property market, more often than not, a deed of sale lapses due to a suspensive condition not being met. This represents challenges for buyers, sellers, conveyancers and practitioners involved in the property
market across South Africa.
The above scenario may result in the seller losing a buyer, the buyer losing out on their dream home, agents losing out on commission, and conveyancers losing a transfer. To counteract this, the parties will often try to salvage the situation by creating an addendum to the original deed of sale. Unfortunately, if the ball is dropped at this juncture, the parties involved can suffer serious consequences.
This was evident was in the case of Compu-Cool Consulting v Silver Dawn Investments 168 CC and Others (unreported). This article unpacks the law as it relates to an attempt to revive a deed of sale that has lapsed due to a suspensive condition not being met.
1. Background
Compu-Cool (the Applicant), concluded a written sale agreement with Silver Dawn (the Respondent), for
immovable property, with a suspensive condition that Compu-Cool obtains a loan on the security of a
mortgage bond, within 31 days. This condition was not fulfilled within the time stipulated and as a result,
the written sale agreement had lapsed. The parties later concluded an addendum – which they considered
to be a “revival agreement”, in which they replaced the already defaulted upon suspensive condition. The
newly inserted cash-payments-arrangement in which the Purchaser would pay half the purchase price
within 5 days of the revival agreement (this amount was paid to the conveyancing attorney as agreed) and
pay off the rest within a 6 (six) months period, was intended to replace the suspensive condition in the
original sale agreement. Compu-Cool decided not to proceed with the transaction and contended that the
sale agreement became regarded as void ab initio due to the non-fulfilment of the suspensive condition
and that it could not be revived. It sought an order declaring the agreement void and return of the monies
paid.
2. Applicable law and analysis of the case
A point of departure in this matter should be Section 2(1) of the Alienation of Land Act 61 of 1981 (the Act)
which provides that “no alienation of land after the commencement of this section shall, subject to the provisions of section 28, be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority”.
In this case, the application was dismissed, and the revival agreement was declared to be valid. Meyer J
considered whether the revival agreement complies with the statutory requirements of Section 2(1) the
Act; the general consequence of a failure of a suspensive condition; and whether the revival agreement
was a substantive and new written agreement for the sale. These are further unpacked below to
understand how the court came to its decision.
2.1. Revival agreement complies with the statutory requirements of s 2(1) of the Alienation of
Land Act 61 of 1981.
From the reading of Section 2 (1) of the Act, a sale agreement in respect of immovable property is not valid unless certain formalities are complied with. In Fairoaks Investment v S Oliver (268/07) [2008] ZASCA 41 (28 March 2008) the Court held that an agreement of sale with amendments to revive a lapsed agreement of sale of an immovable property due to non-fulfilment of a suspensive condition must comply with Section 2 (1) of the Act. In the case concerned, Meyer J held that the new agreement did indeed comply with these provisions in that the revival agreement was in writing.
2.2. The general consequence of a failure to meet a suspensive condition.
Meyer J did not spend time dissecting this point as it was not a point of contention between the parties, but it is an important point to elaborate on in order to understand why there was a need to deal with 2.3 below. A suspensive condition can be described as a condition that suspends the operation or effect of one, or some, or all, of the obligations under a contract until the condition is fulfilled. According to Mia v Verimark Holdings (Pty) Ltd (522/08) [2009] ZASCA 99 (18 September 2009): “The conclusion of a contract subject to a suspensive condition creates ‘a very real and definite contractual relationship’ between the parties. Pending fulfilment of the suspensive condition, the eligible content of the contract is suspended. On fulfilment of the condition, the contract becomes of full force and effect and enforceable by the parties in accordance with its terms”.
In other words, the fulfilment of a suspensive condition is a pre-requisite for a contract to come into force and effect. If the condition is not fulfilled, then no contract comes into existence. Once the condition is fulfilled, the contract and the mutual rights of the parties related are deemed to have been in force from, the date of the signature of the agreement and not the date of the fulfilment of the condition.
If a suspensive condition is not fulfilled timeously, the sale agreement lapses and is regarded as
void ab initio (void from the beginning) or as if it has never existed. The effect is that a lapsed sale
agreement is not capable of being revived.
2.3. Whether the revival agreement was substantive or new written
Since a lapsed sale agreement is not capable of being revived and is considered void ab initio, what happened to the reviving agreement? To deal with this question, Meyer J invoked the
principle of interpretation as established in Natal Joint Municipal Pension Fund v Endumeni
Municipality 2012 (4) SA 593 (SCA) where it was held that a document must be read in context and
having regard to the purpose of the provision and the background to the preparation and production of the document.
The revival agreement was interpreted as constituting a new and substantive agreement of sale although it was meant at reviving the transaction between the parties. Meyer J held that it was clear from the express terms, the purpose, and the effect, that the parties had intended to conclude a new agreement of sale and that the revival embodies different terms to those of the lapsed agreement.
3. Conclusion
The most important lesson to take away from this judgment is trying to revive a sale agreement that lapsed as a result of a suspensive condition not met with an addendum agreement, is not possible. This is because an agreement that has lapsed in this way is regarded as void from the beginning. The effect is that the sale agreement is not capable of being revived. It must be noted that the sale agreement was not revived but the reviving agreement was considered to be a new agreement of sale. In exceptional
circumstances where the reviving agreement complies with the provisions of Section 2 (1) of the Act, such
agreement may still be binding and enforceable on both parties – but only as a “new” agreement.
To avoid uncertainties, parties should enter into a new agreement of sale on the same terms and
conditions as the lapsed contract, providing for new/amended suspensive conditions, thereby rerecording the terms of the lapsed contract, subject to new conditions.