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Liability for agent’s commission upon cancellation of purchase offer

Will you be liable for the agent’s commission if you cancel an offer to purchase?

In order to answer this question, one would need to consult the terms of the Offer to Purchase (“OTP”). The OTP is usually drawn up by the estate agent usually representing the seller. Once the OTP is signed by all parties, it becomes legally binding on the parties and withdrawing or cancelling may incur penalties.

However, there are scenarios in which the document can be cancelled without paying the usual corresponding penalties that would otherwise apply, depending on the wording of the contract.

1. When a suspensive condition is not met.

Suspensive conditions are conditions that suspend the obligations of the contract (for all parties) until they have been fulfilled. Common examples include the purchaser getting the necessary bond approval, a successful home inspection, or the sale of the purchaser’s current property within a specified amount of time.

For the above scenarios to apply, you would have to prove that you were unable to meet a suspensive condition, despite your best efforts. You can’t simply choose not to comply as a way to evade your obligations.

2. Breach Of Contract

When there is a breach of contract, you usually have a choice to either uphold the contract or cancel the contract

If this happens, the party not at fault can justifiably cancel the OTP and claim any legitimate damages or losses from the party in breach.

These costs can be significant, from estate agents’ fees and legal costs to compensation for loss of profit.

It’s generally a very contentious process and could easily end up in litigation, which is why we urge both buyers and sellers to take their contractual responsibilities seriously.

When the offer is on a home priced under R250,000

In terms of The Alienation of Land Act, a buyer can cancel their OTP, regardless of suspensive conditions or other clauses, if the offer is on a home priced under R250 000 and notification in writing is provided to the seller within five days of signing.

How to protect yourself

Cancelling an OTP when all the suspensive conditions have been met is a complex and often expensive process. So, how can buyers avoid ending up in this kind of situation?

Talk all the details through with your estate agent, and have your attorney look things over if there is any uncertainty. Once you sign on that dotted line, you’re committed – you need to be sure you know exactly what you’re getting into and are making the best possible decision with the purchase of your new property.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

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