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What makes a contract valid?

What are the basic requirements for an agreement to be considered binding? According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, for an agreement to be considered a legal binding document, there are some key aspects that need to be in place, such as the fact that it needs to be a written document that is signed by both parties.

He notes that the agreement also needs to be made between two parties who have the legal contractual capacity to enter into such agreements. “The parties involved, which in the case of an Offer to Purchase is the buyer and seller, need to reach consensus to enter into the agreement. The agreement must also contain the name of each party, the agreed-upon purchase price and the subject of the sale, which would be the immovable property in a property transaction,” says Goslett.
It is not necessary for the contract of sale to be embodied in one document – it can compile of two, namely the written, signed offer and the written, signed acceptance. However, if the contract has been slip into two documents, each document must make reference to the other.

According to Goslett, a letter from a seller stating they would like to buy a property for a certain price does not constitute a valid offer. For the offer to be valid, an Offer to Purchase document must be signed by the buyer and brought to the seller’s attention, either personally, telephonically, by fax or by post. Goslett says that all blank spaces on the document must either be filled out correctly or deleted if they are not applicable to the deal. He adds that if there are material elements of the proposal that still need to be discussed and agreed upon, it is not a complete offer, even if the seller accepts it.

However, if the parties agree that the matters that still need to be talked over are immaterial to the deal, the contract can be created. Unless stated as irrevocable for a certain period, the buyer can withdraw their offer anytime before the seller accepts it.

“As with the offer, the acceptance must also be in writing and signed by either the seller or the real estate professional who is acting on his or her written authority. No-one else may accept the offer on the seller’s behalf. The language of document must be easy understand and not left up for interpretation. To conclude a valid contract the seller’s acceptance of the offer will need to be communicated to the seller. Once the seller has signed the Offer to Purchase document it will be considered a legal and binding document,” says Goslett. “If the seller decides to reject the offer for whatever reason, the offer ceases to exist immediately and cannot be accepted at a later stage. If the seller counters the buyers offer – it is considered as a rejection of the buyer’s initial offer.

According to South African legislation, once the buyer and seller have signed an agreement to purchase a property, the seller cannot accept a competing offer from another buyer before registration takes place. “However, if the current offer becomes null and void due to non-compliance with the clauses laid out in the contract, the seller will be able to enter into another agreement with another buyer,” says Goslett.

A valid contract provides protection to both the seller and the buyer.  Having a written contract in place ensures that each party understands what is expected of them and reduces the chance of disputes or misunderstandings further down the road.


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