Beware The Badly Worded Bond Clause!

“The terms of the contract are the decisive criterion by which any potential expiry of a deadline has to be determined” (extract from the judgment below)

A recent High Court decision provides yet another reminder to have your property sale agreement drawn (or at least checked) by a professional. Before you sign anything!

As is the case in many such property sale disputes, it started with one of the parties – in this case the seller – looking for a way to escape the agreement after getting cold feet.

The seller tries to escape the sale

• The sale agreement in this case contained a bond clause, a very common “suspensive” clause giving the buyer an agreed period of time within which to obtain a bond, failing which the agreement would come to an end automatically.
  
  
• Bond clauses commonly specify a 30-day period from the date of the sale agreement, making it clear when exactly the period expires.
  
  
• The problem in this case was that the bond clause was worded somewhat differently, no doubt because of an issue with unlawful occupants on the property.
  
  
• This clause gave the buyer 30 days, not from the date of the sale, but from the date on which she was given “sole beneficial occupation”.
  
  
• For a variety of reasons the transfer was delayed for four years, and the seller – now keen to get out of the sale because she had decided that the agreed price was too low - argued that the agreement had fallen away automatically. The bond clause period, she said, expired 30 days after the buyer took possession and occupation (the date of the sale) and the buyer’s failure to get her bond within that period put an end to the sale.
  
  
• The buyer on the other hand argued that the 30 days never started running at all, because even four years later there were still unlawful occupants on the property (the sale agreement authorised her to evict the occupants at her own cost, and she hadn’t done so).
  
  
• The Court held that the sale agreement distinguished between “possession” and “occupation” – which had both been given to the buyer immediately on signature of the sale agreement - and “sole beneficial occupation”. In the context of this agreement, held the Court, “sole beneficial occupation” meant that the buyer, “to the exclusion of all others, was to enjoy the benefit of occupation of the property pending transfer.”
  
  
• Although the buyer had indeed been given “possession” and “occupation” four years ago, she had never been given “sole beneficial occupation”. The 30-day period had never started running and the seller is bound by the sale agreement.

For want of a well-drawn bond clause…

Badly drawn bond clauses have been the downfall of many a seller and many a buyer in the past. In this case the seller is not only stuck with an unsatisfactory sale price, she also loses four years’ worth of income because the buyer is not liable for occupational interest until sole beneficial occupation is given. Plus of course the seller must now pay all the legal costs.