It is possible to buy a property, on the basis of using the proceeds of the sale of your own property to pay for your purchase.
Obviously, the seller must be willing to tie his sale to the sale of your own property.
A well-drafted clause is necessary to set out this arrangement.
It should stipulate that whilst the seller is waiting for the purchaser to sell his own property, the Seller is entitled to continue marketing to seek out a competing offer to purchase.
Should a competing offer be received, it must be handed to the first purchaser to see if the first purchaser can match or better the competing offer. The first purchaser is given 48hrs or 72hrs to exercise his option to better the competing offer. Should the first purchaser not respond, then the first sale will automatically lapse and the competing offer will take its place.
We recommend that the original purchaser be named as the first purchaser and the second purchaser named as the competing purchaser. The second property should be named as the second property.
The moment the first purchaser confirms that he is proceeding with his purchase, the seller should immediately stop marketing for a competing offer to purchase.
The clauses should be scrupulously adhered to, to avoid ambiguity and confusion.
Avoiding the Confusion
As there are two sellers, two purchasers and two properties mentioned in one document, understanding the agreement can become confusing; especially if the clause is drafted in a rush.
As the clause is essentially a procedural guideline, it is essential to stick to the letter of the agreement. This is to avoid a conflict of rights and the worst-case scenario when a single property is unwittingly sold twice to both purchasers.
For instance, we have had a seller who jumped the gun and accepted the competing offer without giving the first purchaser the opportunity of matching the competing offer; resulting in High Court litigation.
Another example is that a competing offer was likely to be submitted, and the problem was that there was no mechanism to decide which of the two purchasers would become the new purchaser.
If the first purchaser was not informed of the existence of a competing offer, then he might continue to sell his own property and the seller might not want to accept that first offer and might want to prefer the competing offer; leaving the first purchaser in the lurch.
The danger of a dispute was averted before a competing offer was accepted; because we warned the seller of the risk of a double sale and we persuaded the Seller not to accept the competing offer, without first giving the first buyer preference.
Another option is to agree with the seller that by means of an addendum, the procedure of giving the first purchaser the opportunity of matching, a competing offer, be integrated into the sale agreement.
The first purchaser could say that he has preference to take transfer, causing a dispute and a double sale; which we have experienced in the past. This was where the seller ignored the conditions and sold to the competing purchaser in disregard of the first purchaser’s entitlement to match the offer and to take transfer. The seller could be sued by the first purchaser for specific performance and/or damages.
In order to avoid a dispute, it is safer to arrange that the existing estate agent receives the competing offer to purchase and manages the process of giving the first purchaser the opportunity of considering the competing offer to purchase.
Avoid ignoring the process of giving the first purchaser the opportunity of matching the competing offer to avoid a dispute.
Limit the chain from being extended
In the early days, we had to deal with numerous chains of interlinked conditional sales, all depending on each purchaser having to sell his own property in turn. In one case there was a chain of five interlinked transfers; each one depending on the sale of his purchaser’s property.
Each property in the chain will extend the time by an additional month per property. It is necessary to avoid the cumbersome process, as there would be up to four people per property to manage and coordinate; all of which makes it very difficult to conclude.
We recommend stipulating that the end purchaser is not allowed to extend the chain by allowing his purchaser to rely on the sale of his own property.
Define each property
The clause should clearly identify each property concerned.
Stipulate that the money must be used from the second sale to pay for the first purchase.
State that that the second purchaser will pay the proceeds of his sale to pay for his purchase.
Here is another pitfall to avoid.
The parties chose a different estate agent as well as a different conveyancer to attend to the second sale. The second agent and/or the second conveyancer erroneously gave the first purchaser the impression that the second purchaser had already paid the end-purchase price when it actually had not yet been paid. On the strength of this misleading information, all the final transfer documents were signed in the belief that the money had been secured; when it had not been secured.
The result was that the first sale was tied to the purchaser’s sale, without the money from the second sale, being available.
In the past, we had one purchaser refusing to allow the seller’s conveyancer to contact and liaise with his own conveyancer when it was absolutely necessary to cooperate.
In order to prevent these misunderstandings it is safest to ensure that a single estate agent manages both sales and that the finances emanating from both sales be controlled and managed by a single conveyancer.
Make the second property subject to obtaining a mortgage loan.
It is essential that the competing offer to purchase becomes a valid purchase agreement and that it will produce the price to pay the first purchaser. This would mean that the competing offer must be a cash offer or must be made subject to an appropriate mortgage loan being granted.
State that the two transfers should be registered simultaneously or as close together as possible, as determined by the conveyancers.
Do not use the phrase: “Subject to the successful conclusion of the purchaser’s sale.
The legal meaning of this clause is when the seller accepts the purchaser’s offer to purchase; namely just signing a piece of paper. It does not mean that the transfer has been concluded and that registration of transfer has taken place and does not mean that the purchase price has been paid over. It is preferable to rather stipulate that the sale is subject to registration of transfer of the purchaser’s property.
The risk of overlapping sales going awry is high and therefore one should take extra care in entering into this type of agreement.
Denoon Sampson is the Director at Denoon Sampson Ndlovu Inc, currently ranked the ‘number 1’ top performing conveyancer by First National Bank Limited. He has 30 years of experience as a conveyancer, specialising in the full spectrum of property-related law and is often called upon to give talks or contribute content on related matters.