When Are The Bond Conditions In A Residential Property Sales Agreement Actually Met?
A question which seems to rear its head every now and again, is this: When is a bond condition actually, met? Is it once a bank issues a “final grant”/“quotation”/“facility letter”, or only once this is accepted, by a purchaser?
The typical scenario that presents itself is as follows: A purchaser makes an offer whereby the purchaser agrees that the moment any financial institution issues a document (call it any of the above), wherein it states that it is prepared to offer a loan for the amount required and within the time allowed, the bond condition is then deemed to be met. A bank then issued such a document, within the required time, but the purchaser gets cold feet and, in an effort, to escape the contract decides not to accept the offer.
On 21 June 2024, in the matter of Setso Property Fund (Pty) Ltd v Manama, the Johannesburg High Court held that “the suspensive condition was not concerned with whether or not a binding loan agreement came into being between the purchaser and the financial institution. It was concerned only with the stage when the agreement between the seller and the purchaser became effective. What is required is an objective finding that the financial institution was prepared to advance the loan required upon a mortgage being registered over the approved security (being the property to be encumbered)”.
What this therefore means, is that the bond clause should make it crystal clear, that the moment a bank grants either a quotation in terms of section 92 of the National Credit Act, or a facility letter, or a final grant, or for that matter, “any document in terms of which the financial institution has made a final decision that it is willing to lend the Purchaser the sum of money that is required”, and provided it is within the time frame allowed, that the condition is met – regardless of acceptance by the purchaser.
The only exceptions may be, if the purchaser reserved the right to first review the interest rate or the term for example, or, if the loan is granted subject to the cancellation of an existing home loan, or subject to the existence of approved building plans or the existence of an occupancy certificate. If such (unusual) conditions are imposed, then the condition might not have been met but that will depend entirely on the language used in the bond clause and the intention between the parties.
It is therefore vital that the parties to a sale agreement of land understand and agree on what exactly is required, before the bond clause is “deemed to be met”. According to Robert Kräutkamer of Miltons Matsemela, property practitioners and parties to the agreement should be careful not to limit the wording to a “formal quotation” in terms of the NCA. Not all banks issue a “formal quotation”. Some issue a facility letter for example, but the question that may be raised, is whether this now meets the bond condition?
Kräutkamer suggest that sale agreements lend as wide an interpretation as possible to the language used so as to bar any purchaser from escaping a contract simply because of restricted language usage.