You must be sure to check and understand every clause in an Offer To Purchase (OTP) before you sign it
Once you have found a home you want to buy, it’s time to make an Offer to purchase (OTP), but for many buyers this legal document is a bit daunting. The first thing you need to know is that the OTP, once accepted and signed by the seller of the property, will become a contract – a Deed of sale – that is binding on both parties. This means you will not be able to change your mind about buying the property without a financial penalty, except if the purchase price is R250 000 or less, in which case you will have the right to cancel your offer (in writing) within five working days of signing the OTP.
Consequently, if you are keen on any property priced at more than R250 000, you must be very sure you want to buy it before you sign an OTP. And that leads to the second thing you must know, which is that the OTP – which must be in writing – must include all the specific terms and conditions of a particular property transaction, which should be completely disclosed and agreed to by both buyer and seller before the document is signed.
If there is an estate agent facilitating the sale, he or she should be able to explain any part of the document to your satisfaction before you sign it. But if you are still unsure about anything, don’t hesitate to consult an attorney as this could prevent time-consuming – and costly – problems at a later stage. Adrian Goslett, CEO of Re/max of Southern Africa, says clauses that should be in the OTP include those dealing with fixtures and fittings, the conditions of sale, the date of occupation and occupational rent.
‘The more specific an OTP is, the better,’ he says. ‘If all aspects of the sale have been covered and written into the document, there will be very little room for either the buyer or seller to negate anything at a later stage. For example, certain curtains or furniture may have been specifically manufactured for that particular home, so it would make sense for the seller to include those items with the home. However, if those items are not listed in the OTP, the seller has no obligation to leave them.’ Indeed, it is very important that both parties agree in as much detail as possible about ‘what stays and what goes’ when the seller moves out.
Then in some cases, Goslett says, buyers may make an offer to buy a new home before they have sold their existing property. Or they may need to make their OTP conditional upon obtaining a home loan to finance their purchase. ‘And in these instances, the OTP must include a clause stating that the sale is ‘subject to’ the home loan being approved or the buyer’s current property being sold.’
While the bond-approval condition usually has a time limit on it of seven to 10 working days, this can be extended by agreement between the parties. As for the time limit for the buyer to sell his existing home, this is usually 90 days, but again can be changed provided both buyer and seller agree. Once the home buyer receives confirmation that his home loan has been approved or that his home has been sold, he must notify the agent immediately to ensure that the OTP becomes unconditional.
On the other hand, if the buyer is not able to secure the necessary home loan within the specified time, the OTP will terminate and become null in void, and neither the buyer nor the seller will be liable to pay any costs or penalties. Goslett explains that it is also essential to be specific in the OTP about the date of occupation, which is the day on which the property will be vacated by the seller so that the buyer can move in, or at least obtain the keys to the property should he wish to make arrangements to clean it or paint it before moving in. ‘The date of occupation will also have a bearing on whether the buyer will have to pay occupational rent,’ he notes. According to SA Homeloans, this is the amount that must be paid to the seller by the buyer if the buyer has taken occupation of the property before it has been transferred and registered in his name.
‘Alternatively, occupational rent could be paid by the seller to the buyer if the seller needs to continue occupying the property for a period after registration of transfer, and the estate agent should assist the parties in reaching an agreement in this regard.’ Buyers should also note that once the OTP has been agreed on and signed by both buyer and seller, all negotiations have been concluded and any relevant cooling-off period has passed, their deposit should be placed into an interest-bearing trust account until transfer of ownership is complete. The interest on this amount will be for the benefit of the buyer and should be paid out to him on transfer.
Words: Meg Wilson