So, how does one approach an OTP? Here are a few key clauses to note when considering an OTP.
Suspensive conditions
This clause includes conditions that must be fulfilled in order for the OTP to be valid and in force, the most common being that the purchaser successfully obtain a loan from their chosen bank. Should bond approval not be obtained, the suspensive condition is not fulfilled, and the OTP will lapse. Other suspensive conditions may include inspections or due diligence by the purchaser, exchanging documentation between the parties or the conclusion of ancillary agreements.
Upon fulfilment of all the suspensive conditions, the OTP becomes valid; there is no option to “opt out” between signing the OTP and fulfilment of the suspensive conditions, unless by mutual agreement of the parties. It is worth noting that a concept known as “fictional fulfilment” will deem conditions as having been fulfilled, should any party purposefully hinder fulfilment thereof. Parties who need more time to fulfil a suspensive condition should request an extension from the other party but must be careful to do so before the lapse of the required period within which to perform, bearing in mind that a lapse of the time period will mean that the OTP itself lapses. This appears harmless should the parties continue to act as though no lapse occurred; however, it can be problematic down the line should a third party become involved.
Breach
Many OTPs will reference forfeiture of the deposit paid by the purchaser, in the event of a breach of contract. The Conventional Penalties Act only allows for the imposition of penalties that are proportionate to the loss incurred. Therefore, the forfeiture of the deposit may not be punitive, and may only be relative to the loss actually incurred by the seller, on account of the purchaser’s breach. The seller must therefore be able to quantify the damages that they have incurred. There is, therefore, no such thing as a “non-refundable deposit” per se. It is possible that a deposit may not be refunded if set off against the damages incurred by the seller, but those damages must be proven. That said, an OTP may make provision for retention of a deposit, pending the determination and quantification of damages.
Should a party breach the agreement, they could be liable for damages such as legal fees incurred by the other party and estate agent’s commission.
Rouwkoop
Rouwkoop, translating to “regret purchase”, is an amount that the purchaser agrees to pay the seller in the event that he has buyer’s remorse and wishes to exit the agreement. While this is often confused with a penalty for breach and is therefore found under a penalty or breach clause, it is not intended to be punitive and should not be confused with an amount payable to the seller in the event of a breach by the purchaser. There should be a time period attached to a rouwkoop clause.
Commission
The seller is usually liable for the estate agent’s commission. Be advised that the commission should not fall due on the signing of the OTP, but rather upon the fulfilment of the suspensive conditions. This is to avoid the situation where the estate agent becomes entitled to their commission, but the OTP is invalidated due to non-fulfilment of suspensive conditions. Commission is payable to the agent upon transfer of the property.
Any subsequent agreements with respect to the OTP must be reduced to writing as an addendum to the initial OTP.
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