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72 Hour Clause
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The 72 Hour Clause in a Property Transaction
Buying or selling fixed property, either way; it’s not something we as individuals do every day. Whether you are a buyer or a seller, you will want to protect your interest in the transaction and there are a number of legal ways in which you can do so. The 72-hour clause is just one of many clauses that can be built into an Offer to Purchase. Before we look at the 72-hour clause, let’s first look at the meaning and use of a suspensive condition.
What is a suspensive condition?
A suspensive condition is added to an Offer to Purchase to protect the interest of a buyer. The most common use of a suspensive condition is when a buyer undertakes to buy a property subject to obtaining home loan finance approval from a bank or other financier.
Another suspensive condition regularly used is when a buyer undertakes to buy a property subject to his existing property being sold. This is used where the proceeds of the sale is needed for a deposit in buying the new property.
Any suspensive condition will have a time period attached to it, if not transactions could take months, even years to complete. Should these conditions not be fulfilled within the specified time period, the deed of sale becomes null and void. This is all very well in the case of the buyer but what about the seller?
What if the seller receives a better offer during this time?
Nowadays it can take a long time to get final bond approval. While the buyer is anxiously waiting to know if his property is sold, he may be losing out on a better offer, for example from a cash buyer or someone offering him a higher amount. What can the seller do in this case?
The 72-hour clause to the rescue
If a seller wants to prevent getting caught in the situation described above, he will insist on a 72-hour clause being inserted in the offer to purchase. Where a 72-hour clause is applicable on an offer that the seller has accepted, the seller has the right to continue marketing his property and also to accept other offers while waiting for the fulfillment of the suspensive condition. Should the seller receive a better offer he can invoke the 72-hour clause by informing the first buyer of the new offer. The first buyer will have 72 hours to meet all suspensive conditions. Failing to do so will effectively cancel the transaction and the seller is then free to complete a transaction with the new buyer.
The 72-hour clause by a different name
The name “72-hour clause” indicates that the original buyer is given 72 hours to meet the suspensive conditions. However, a buyer and seller can negotiate a different time period if acceptable to both parties. Other terms you may hear which have the same meaning as the 72-hour clause are: escape clause, first refusal clause, release clause or kick-out clause.
What if you are the buyer?
Clearly the 72-hour clause is in the best interest of the seller. So what can you do, as a buyer, if you badly want the property? To be fair to the seller you need to do everything possible to make sure that conditions are met timeously; for example providing the bank with all the required details if the condition is the granting of a loan. Don’t be afraid to discuss other options with the buyer before signing an offer to purchase.
Make sure you use the right wording
Where buying or selling property involves an estate agent, the agent will arrange for the paperwork such as the offer to purchase. Whether you are the buyer or seller, make sure you read the wording carefully – you are entitled to ask for changes if you are not happy. Any change to a clause could change the entire meaning thereof so always protect your own interests.
The standard 72-hour clause
Like we said, any clause can be changed, subject to the agreement by both buyer and seller. Below is an example of the wording used in an Offer to Purchase used on www.law24.co.za:
“Should the Seller at any time prior to the fulfilment of all suspensive conditions receive another bona fide offer to purchase his property, which offer he, in his sole discretion, finds more acceptable and wishes to accept, then the purchaser herein shall be notified of such fact in writing and shall have 72 (seventy two) hours (excluding Saturdays, Sundays and Public Holidays) from time of receipt of such notification to waive in writing the benefit of all suspensive conditions in this Agreement thereby binding the Purchaser unconditionally to the Agreement, failing which, the Agreement will lapse and be of no further force and affect. In the event, however, of the offer which the Seller wishes to accept being subject to the cooling-off provisions as prescribed in terms of Section 29A of the Alienation of Land Act of 1981, then the obligation on the part of the Seller to notify the Purchaser as prescribed in terms of this clause shall be postponed until after the cooling-off period has elapsed and furthermore shall not be required to be given at all should the Offeror exercise his rights in terms of the aforesaid cooling-off period to cancel the offer / agreement.”
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