Mc Naught & Co
The 72 Hour Clause and Continued Marketing
THE 72 HOUR CLAUSE & CONTINUED MARKETING
In terms of section 2 of the Alienation of Land Act No. 68 of 1981, the sale of land must be contained in a written document and signed by both the seller and the purchaser. It must contain the details of the parties, the property, and the purchase price. Once all these elements are met, the agreement then becomes a legally binding document and the parties are obligated to perform in terms of the contract.
However, where the agreement of sale contains a 72 hour clause, the parties may be able to escape from the contract.
What is a 72 hour clause?
The 72 hour clause is a clause in the offer to purchase, which allows the seller to continue marketing his property after there is an existing, valid agreement of sale, until an unconditional offer is received, which said second offer is either on the same or better terms than the original offer. A seller can accept this second unconditional offer, thereby making the first offer to purchase null and void.
Why is it included in the OTP?
It allows the seller to obtain the highest possible price for his property in the shortest amount of time. It also protects the seller from purchasers who sign offers to purchase and enter in sale agreements, when they are not in the financial position to afford it. It further protects the seller from purchasers who are delaying the transaction.
When can this clause be invoked?
It can only be invoked before the suspensive conditions in the first offer to purchase have been fulfilled. This means that if the buyer has 21 days to obtain a bond grant in offer 1, and obtains his bond grant on day 8, this clause would have to be invoked prior to day 8 when the condition was fulfilled.
It is extremely important to invoke the 72 hour clause in the correct manner in order to avoid problems or legal battles down the line. The seller must give the purchaser written notice that he has received a similar or better unconditional offer which he wants to accept. He must offer the purchaser a right of preference to either waive the suspensive conditions applicable to offer 1 or to comply with them and pay the purchase price in cash. The written notice must state how long the purchaser has to either comply with or waive the suspensive conditions. Although it is called the 72 hour clause it could refer to an alternative period of time depending on how the clause is worded. The purchaser must confirm receipt of the written notice. He should indicate the date and time of receipt on the notice.
The consequences of invoking the clause are as follows:
If the purchaser does not waive or comply with the suspensive conditions, then offer 1 becomes null and void. The seller is then able to accept offer 2 which becomes a legally binding document.
If the purchaser in offer 1 chooses to pay the purchase price in cash, or waives the suspensive conditions, then offer 1 becomes legally binding and both parties are then obligated to perform in terms of the contract.
It is extremely important to be wary of the wording of this clause in your particular offer to purchase, and make sure that it is clear and unambiguous. The parties may choose and agree to remove this clause and to not include it, as it is an optional clause.
Sasha Posner – Associate at McNaught and Company Inc (Sandton Office)