Advice and Opinion

Don't assume second contract overrides the first

When buyers and sellers of property enter into a written agreement, they should not do so lightly, nor without some legal help from an experienced attorney in making sure that the wording is correct if they choose to do a contract without a registered estate agent. As contracts are binding, as are the conditions stated within them, says Lanice Steward, managing director of Knight Frank Residential SA.

There are sometimes cases where a sales agreement is signed by both the buyer and seller and then a second agreement is entered into, the trouble with this scenario is that if the first has not been cancelled properly, this one will still be in place and may even clash with the conditions of the first.

A case mentioned in a Smith Tabata Buchanan Boyes Property Law update, Laynes v Coco Haven 1100 CC and Another, is such an example. In this case the seller (Coco Haven) and buyer (Laynes Jnr) concluded two sale agreements, one shortly after another: the first for a purchase price of R1 050 000 and the second for a lower price of R750 000.

For some reason or another, said Steward, the second agreement was cancelled by mutual agreement, but because the first agreement had not been cancelled in writing (which was stipulated in this agreement) and when things became complicated by a third offer being submitted by Laynes Snr, the matter was taken to court to settle which contract was in fact valid.

The courts found in favour of Laynes Jnr, stating that the second agreement for the lower price was not valid as the first one had not been cancelled in writing and that Coco Haven should not have entered into the third. The courts ordered that transfer of the unit go to Laynes Jnr.

“One may ask why the second was entered into for the lower price and the third again at a higher price, and although this situation is uncommon, it could have been that furniture and appliances were included in the first offer and then excluded in the second,” explained Steward.

“It is not uncommon when negotiating a deal that the initial offer to purchase includes the cost of the furniture. This should not have been included in the purchase price of a house as transfer duty is not payable on the furniture and appliances, nor should the agent’s commission include a percentage of the furniture price, so this amount should always be stipulated separately,” she said. “A second agreement is then entered into with the correct wording and pricing, and cancelling the first, which is what should happen in this scenario.”

“Many offers to purchase will have a validity clause in it, which stipulates that it will remain binding unless the cancellation of it is reduced to writing. Buyers and sellers should check their contracts carefully and if they are not sure ask their agent or seek advice from their attorneys before signing anything, as the fine print can be confusing or missed and it is better to have an experienced eye go over it than expensive mistakes be made,” said Steward.

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