Beware the pitfalls of contracts on Iimmovable property

Estate agents should take time In being certain that a valid and binding agreement has been reached between buyer and seller, according to an according to an article in the latest Pam Golding Properties Intellectual Property magazine. In this article the magazine examines a recent judgement that serves as a vauable alert to pitfalls relating to immovable property.

The recent judgment in Shaik & others v Pillay & others [2007] JOL 20893 (N) is a valuable alert to pitfalls real estate practitioners may encounter when dealing with contracts for the sale of member’s interest relating to immovable property.

The facts, briefly summarised, are:

P approached a well-known estate agency, X, with the view to purchasing a beachfront property in Durban. X subsequently received a mandate from Y (the developers) to market a new sectional development on the beachfront and advised P of the details. The units would be owned in close corporations and purchasers would buy the membership interest in a corporation.

P was eager to invest in the scheme and signed the standard agreement that X had furnished to him. (In casu, the document headed agreement constituted an ‘offer to purchase’, since it was only signed by the purchaser). P then duly paid a deposit to Y’s conveyancers and complied with their requests for documents and guarantees.

Some two months later, P received a letter from the conveyancers advising that Y did not accept his offer. (Q, a purchaser of member’s interest relating to another unit in the same development, had a similar experience so the matters of P and Q were joined when the trial commenced.)

At the trial it appeared that Y mandated X to market the properties, to locate buyers and, once the agreements were signed, to present these to Y for consideration. At one of Y and X’s subsequent meetings, it transpired that Y had received some paperwork from X relating to the agreements that P had signed, but nothing concerning Q’s agreement. Y had no knowledge of the current correspondence between his conveyancers and P and Q. X suggested that Y sign the agreements but Y refused because the agreement with P “was in a mess” and (it seems) because they were unhappy with the purchase price offered.

It appears that initially the units had been sold for a relatively low price since the developers, Y, needed to raise R14 million for which Absa Bank undertook to finance the project. At the time the developers were presented with the agreements signed by P and Q, more money than was needed had been raised and Y’s threshold had been met. So, Y was in a position to increase the purchase price on the remaining unsold units.

The conveyancers confirmed a statement by the developers that their mandate included the opening of a sectional title register and the transfer of members’ interests in the close corporation to the purchasers. It did not include contracting on behalf of the developers, but they confirmed that their duty involved dealing with purchasers and advising them as to the status of the transaction. (The judgment does not mention who had sent the agreements to the conveyancers, but it appears that it was the agents, X, that sent them together with the instruction to attend to the transfer.

The judgment is silent on the question whether the conveyancers noticed that the seller had not signed the agreements, or assuming that they had noticed, why they did not take steps to address this issue. However, it is clear that the two agreements were not signed by Y, the developers).

The court had to determine whether the documents signed by P and Q respectively (but not Y) constituted a valid and binding agreement.

The court noted that the Close Corporation Act, 69 of 1984, does not require the sale of a member’s interest to be in writing, even if it does relate to immovable property. Yet, there never was any direct discussion between the seller and the purchasers and it can therefore not be said that the parties came to any oral agreement.

It could also not be said that it was the intention of the parties that the ‘standard agreement’ would constitute a valid and binding contract between the parties, when signed by the purchasers only.

An investigation of the evidence and the terms of the agreement showed that P and Q understood the respective agreements had to be signed by both parties in order to be valid.

The court concluded therefore that it was clear that the intention was that both parties were to sign as a prerequisite for validity of the agreement. Since Y had not signed, no valid agreement came into existence.

Maryna Botha, STBB’s training and operations manager, comments:
Where an individual instructs an agent with the view to purchasing a property, receives an agreement, signs it, pays a deposit timeously, furnishes guarantees to the seller’s conveyancers on the due dates as well as relevant documentation on request, he/she should have been reasonably able to assume that everything was in order and that the transaction would result in transfer.

There are lessons in this case for attorneys, conveyancers, estate agents and purchasers, among others:

* Estate agents should not instruct attorneys to transfer property (or cede shares in property owning entities) until they are certain that a valid and binding agreement has been reached between seller and purchaser. •

* Conveyancers/attorneys should always check signature clauses in agreements, and should follow up if any uncertainty exists.

* Potential purchasers should, after making an offer, never assume acceptance. There should always be insistence on obtaining a copy of the signed agreement, or if a verbal agreement, on written confirmation of acceptance (or at least on verbal confirmation in the presence of reliable witnesses) of acceptance by the seller.

* Real estate practitioners sometimes tend to treat cession of shares/members’ interest agreements as if they are mere variations of ordinary property transfers.

This is undesirable. Instead, one should remember that section 2 of the Alienation of Land Act (obliging a written agreement) does not apply to sales of shares/members’ interest, and that there are subtle, but vital, differences between the legal structuring of the two types of transactions. Although the legal objective is similar, the process to be followed in a cession of shares/members’ interest, differs markedly from the process of a transfer of immovable property.
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