What Is A 72-hour Clause In A Property sales Agreement & When & How Is It Applicable?
Most standard agreements of sale contain a “72 hour clause” sometimes also referred to as “a continued marketing clause”. For purposes of this article it shall however be referred to as a 72 hour clause.
The aim of this article is to educate buyers and sellers as to the meaning and operation of the 72 hour clause as this is often encountered in property transactions and more often than not result in unnecessary frustration and confusion amongst the parties concerned.
As a starting point let us first examine the meaning and scope of a suspensive condition as the operation of a 72 hour clause is directly linked to a suspensive condition.
A suspensive condition suspends the operation of an agreement of sale until such time as the specific condition contained therein has been complied with. This simply means that all rights and obligations contained in the agreement of sale shall only become enforceable and binding upon fulfillment of such suspensive condition(s).
A typical illustration of such a condition is for example (a) “the purchaser shall obtain bond approval in the sum of a specific amount by no later than a specific date in time” or (b) “this sale is subject to the sale of the purchaser’s property situated at a particular address by no later than a particular date in time”.
An important consideration when drafting a suspensive condition (or prior to agreeing to the terms thereof) is that it must always contain a date by which the condition must be complied with and that it must specify an amount in the event of it pertaining to bond approval. In the event of a suspensive condition pertaining to the sale of the purchaser’s property, the condition must specify the address of the purchaser’s property together with a date by which it is required to be sold.
Although a suspensive condition is generally incorporated in an agreement of sale for the benefit of the purchaser it also serves to protect the seller in that the seller is allowed to continue marketing his property until such time as the suspensive condition has been complied with. Neither party shall be bound by the terms of the Agreement of Sale until such time as the suspensive condition(s) contained therein has been met.
Thus, in the event of a purchaser not being able to obtain bond approval within the specified period for whatever reason, the transaction shall lapse and neither party shall have recourse against the other provided the purchaser has made every attempt so as to make fulfillment of such condition possible by for example submitting all relevant documentation to various Financial Institutions and / or bond originators with delay.
Should the seller receive another, unconditional – or more favourable offer (depending on the wording of the 72 hour clause contained in that particular agreement of sale) the seller shall be entitled (but not obliged) to accept such offer provided the seller gives the purchaser notice of receipt of such competing offer and affords the purchaser 72 hours to comply with the terms of the suspensive condition(s) contained in the agreement of sale and thereby rendering the agreement of sale unconditional and binding.
To break down the components of the clause we could conclude the following in the event of the agreement of sale containing a 72 hour clause:
1. The seller will be entitled to continue marketing his/her property and receive unconditional agreements of sale (i.e. agreements that are not suspensive) or more favourable agreements of sale (depending on how the specific 72 hour clause is worded).
2. In the event of the seller receiving such further offer which he / she wishes to accept, the seller shall be entitled to accept such offer provided:
2.1. He / she notifies the purchaser (usually in writing) that he / she has received another (competing) offer and furnishes the purchaser with a copy of such competing offer.
2.2. The purchaser is given a period of 72 hours (or three days depending on the wording of the clause) from date and time of delivery of notice by the seller within which the purchaser is allowed to waive the right to the suspensive condition. For example if an agreement of sale is subject to a bond, the purchaser would be entitled to waive the bond condition or alternatively obtain bond approval within the 72 hour period and thereby making the agreement of sale unconditional.
3. In the event of the purchaser waiving the right to the suspensive condition, the agreement of sale will immediately become binding on both the seller and the purchaser. The purchaser will then have to make payment or provide guarantees for all of the amounts due in terms of the agreement as if it were an unconditional agreement.
4. Should the purchaser elect not waive his / her right to the suspensive condition and fail to obtain bond approval within the 72 hour period, the first agreement will lapse and be of no further force or effect. The second offer (i.e. the unconditional or more favourable offer) will then become the effective agreement as between the seller and the new buyer.
For any further information on the intricacies of the 72 hour clause or any other property related legal queries please contact Annetjie van Rooyen on annetjievr@stbb.co.za .