Unusual Contract Clauses

I never believed that it was true, but a few years worth of experience dealing with various property matters, including negotiations between buyers and sellers, have made me realise that many South Africans figure one contract to be exactly the same as any other. But it is not only true for the South African public. I was once accused of being an idiot, by a real estate agent who claimed to have 20 years experience, because my contract was like a "*@#!% YOU magazine", compared to the 3 page document he uses.

I figure that an offer to purchase document, or a contract of sale for immovable property, is one of those stationary expenses where, being stingy on paper can really prove costly later on. I'd rather get EVERYTHING in black and white, and clear up any matter in the agreement of sale, which could be confusing, BEFORE it becomes a problem.

I think the perception, that one contract is just as good as another, was created by the fact that real estate agents and transferring attorneys have for so long been representing the interests of sellers, primarily, but with "due regard" for those of the buyer. This might not seem like a huge contradiction, but look at it this way: A mother will stand up to anyone who threatens the interests of her child, but try not to hurt anyone else too badly in the process, thus showing "due regard" for their interests. In an altercation with another kid on a playground, backed by a protective mom, wouldn't you (as a kid) also want your own mom there to keep an eye over your interests? Of course you would!

The "standard contract of sale" that the Real Estate Agents' Board developed as a guideline for real estate agencies, may also have contributed to this misconception. In reality, where the sale of immovable property is concerned, there is no such thing as a "standard contract of sale". One of the wonderful things about real estate transactions is that anything goes. Yes ANYTHING!

I can draw up a contract of sale that will transfer residential real estate, in exchange for a herd of cattle. The transfer duty calculations will be a little difficult, but the sale would be binding. Or I could make the sale of a game farm on the Limpopo River, subject to the Free State Cheetahs winning the Curry Cup Final by a margin of two tries. And the sale would be valid!

The point is: THERE IS NO STANDARD!

But South African buyers seem just too happy to accept the status quo. Could it be that South African property buyers just don't know about the benefits of having their interests protected? This article will discuss only three contract clauses that could be employed to protect homebuyers' interests.

Property Disclosures

Although you have toured the property, looked at the walls and ceiling, turned on the faucets and played with the light switches, you have not lived in it, yet. The seller has years of knowledge about his or her home and there may be some things you would want to find out as quickly as possible. Especially if they are negative!

Why not include a contract clause that requires the seller to disclose as many facts about the property as you can think of? Oh, and why not make the seller accept full responsibility if those disclosures proves to be untrue? Of course you can!

In South Africa, there is no law that requires a home seller to disclose a lot of information about the property before entering into an agreement of sale with an unsuspecting buyer, as is the case in places such as the US and Australia. And there is also a little thing called the "Voetstoots Clause", in most South African contracts of sale. This means that the buyer buys the property "as is", and that the seller does not give any guarantees about the condition, usefulness, or suitability for any purpose, regarding the property.

As a seller, this is not an ideal situation, because you could find out too late that there are terrible structural defects only after paying a fortune and living in the property for a few months. A seller who purposefully withheld such information, or even blatantly lied, can be held liable for repairing the problem, but it would usually involve going to court, and we all know how expensive that can be. The point is, if the contract does not provide for such eventualities, it would be very hard for you to get some of that money back later, to pay for the much needed repairs.

Basically, you want the seller to disclose any adverse conditions that may have a substantial impact on your decision to purchase the home BEFORE you move in. This would include any problems with the house itself, whether the property is in a flood zone, a noise zone, or any other kind of hazardous or unsuitable area.

This is not an everyday request from a buyer, because things just hasn't been done like this in South Africa. So even if you have an agent representing you, you might need to get some legal help from a property professional in drawing up an annexure to a contract. In my opinion, obtaining these types of disclosures should always be a part of your offer to purchase, and leaving it out of the agreement can have some nasty results.

Condition of the Property

The last thing you want when you assume possession of your new home is to find it in a total mess. Therefore, you should make it clear, in your offer to purchase, that certain minimum standards are required. If you do not, you might find that the seller, or the neighbours, have begun using your back yard as a trash dump, or something worse, and you would not be able to do anything about it, except suck it up and have it cleaned at your expense.

Some of the requirements you might want to include in your offer to purchase, are that the roof does not leak, the appliances (like the hot water geyser, the swimming pool pump, and the bore hole pump) all work, the plumbing does not leak, that there are no broken or cracked windows or tiles, that the yard has been kept up, and any trash or debris has been cleared away.

Once again, these are not "standard" conditions to a contract of sale, because the "experts" have been representing the seller's interests only, for much too long.

Home Inspections

Besides the bank valuation, or appraisal, and the termite, or borer beetle inspection, and the issuing of a valid electrical certificate, you may also want to have a professional go through the house and seek out any potential problems. Of course, you will have inspected the home, but you are not used to looking at some of things that a professional would find. Even if they are not things the seller is expected to repair, at least you will have knowledge of any potential problems ahead of moving into a disaster area.

The seller will want this inspection performed quickly, if they allow it at all, so that you can approve the results of the inspection, and move forward with the purchase. Once you receive the inspection report, you might want to allow yourself sufficient time to review and approve the report. If you do not approve the report, you may negotiate with the sellers on which repairs should be performed and who should pay for those repairs. Otherwise, you should be allowed to cancel the purchase without penalty.

A good average is, to allow ten to fifteen days for the professional inspection report, and five days for you to review it.

Final Walk-Through Inspection

Before taking transfer of the property, you might want to revisit the property, to ensure that it is in the condition you have required in your offer to purchase, and to inspect any required repairs that had to be performed. This final walkthrough inspection should not be done sooner than five days before the intended transfer.

If you would like the right to do a final inspection, make sure it is included in your offer to purchase the property.