An Offer to Purchase (OTP) is a legally binding agreement that sets forth the terms and conditions under which a property is bought and sold. For a successful transaction, both the buyer and seller need to comprehend the key legal aspects of this document. Below, we provide a breakdown of the critical components of an OTP.
1. Who? Identifying the Correct Parties
Before signing an OTP, it is essential to verify that the seller has rightful ownership of the property. This can be done by checking data at the deeds registry and obtaining a copy of the Title Deed. Confirming the seller’s legal authority to sell helps avoid complications later in the process.
Moreover, it is important to determine whether the property is registered as full title or sectional title, and to review the building and zoning regulations to avoid potential conflicts in the future. If the seller is acting on behalf of another individual or entity, they must have proper authorisation to do so.
2. What and Where? Accurately Defining the Property
The OTP must provide a precise description of the property, including the erf or unit number and physical address. If the property is a sectional title unit, it is crucial to specify whether there is any exclusive use area (e.g., a garage, garden, or balcony) attached to the unit. Additionally, if there is any right of extension for the developer or trustees to add more units to the scheme, this must be disclosed in the OTP.
All property details should be verified against official records, such as the deed search or Title Deed, to ensure their accuracy. Incorrect property details could lead to delays or even render the OTP void or cancellable.
3. How much? Clarifying the Purchase Price
The OTP should explicitly state the agreed-upon purchase price, along with the following financial details:
• The deposit amount and the deadline for payment.
• Whether VAT is included or excluded in the purchase price and if VAT is applicable.
• Responsibility for the transfer duty payable to the South African Revenue Service and other transaction-related costs.
• A breakdown of legal fees, including those for transfer and bond registration.
Providing clear financial terms ensures that both parties understand their obligations and helps prevent disputes.
4. When? Addressing Suspensive Conditions and Timelines
The OTP may include suspensive conditions, which must be fulfilled before the agreement becomes legally binding. These conditions could include:
• Bond application: If the buyer requires financing, they must apply for a bond immediately after signing the OTP.
• Bond approval and guarantee provision: The buyer must secure bond approval within the specified timeframe and provide the necessary guarantees to complete the transaction.
• Sale of the buyer’s existing property: If the buyer must sell their current property to fund the purchase, they must do so within the agreed period.
• Automatic extension clauses: Some OTPs include clauses that extend the agreement automatically if conditions are not met within the specified time.
• Requested extensions: If additional time is needed, the parties may request an extension, which must be formalized in an addendum to the OTP.
Failure to meet the suspensive conditions within the required timeframe may render the OTP null and void.
An OTP is not just a simple document; it serves as the foundation of a legally enforceable contract between the buyer and seller. By ensuring all essential aspects—such as the parties involved, property details, purchase price, and suspensive conditions—are clearly addressed, a smooth and efficient transaction can be facilitated.
For expert legal advice on drafting and reviewing an OTP, contact A de Bruyn Attorneys, where our property law specialists are dedicated to safeguarding your interests throughout the process.