Author: Jason Shephard – Candidate Attorney
Supervisor: Penny Chenery – Head of Real Estate and member of the Management Board
Recently, the Supreme Court of Appeal (“the SCA”) was faced with a fascinating question: can an agreement for the purchase and sale of immovable property be revived after a suspensive condition has lapsed, in circumstances where an addendum to the main agreement seeks to extend the suspensive condition? This was the question posed to the SCA in Marie Luisa Palma Codevilla v Paula Jane Kennedy-Smith NO [2024] ZASCA 136 (10 October 2024).
On 04 February 2020, the third and fourth respondents (“the purchasers”) sought to purchase a property located in Kenilworth, Cape Town (“the property”) from the first respondent, the executrix of the estate of her late parents (“the seller”). The selling price was R5 150 000, with a deposit of R200 000 being required by 10 February 2020. The remainder of the purchase price, as is standard in these types of agreements, would be paid by way of mortgage bond in the amount of R4 950 000 as security against the property.
Material to the Offer to Purchase (“OTP”) was clause 7.2, which provided that:
‘Confirmation of approval in writing is to be given by no later than 14 February 2020 whereupon this suspensive condition shall be deemed to have been fulfilled, failing which the aforesaid date shall be extended for a further thirty (30) days with the written consent of the Seller….’
On 10 February 2020, the deposit was duly paid and on 11 February 2020, prior to the date stipulated in clause 7.2 (“the material date”), an Addendum was concluded (“the first addendum”) to extend the date for the granting of a mortgage bond. This addendum extended the date to obtain the loan which was to be secured by a mortgage loan to 19 February 2020. The remainder of the terms of the OTP continued to be in force.
Subsequent to the conclusion of the first addendum, it came to light that the purchasers were experiencing issues obtaining finance for the property. The appellant (the mother of the fourth respondent) then stepped in to provide the necessary funds for the purchase of the property. This resulted in the need to extend the material date further, as the appellant needed time to access additional funding (in the form of a bank guarantee). A letter was accordingly addressed by the third respondent to the conveyancers of the property, DM Inc. (“DM” or “the conveyancing attorneys”) stating that additional time would be needed to release the funds. Unfortunately, the funds were not released by the appellant by midnight on 19 February 2020. The suspensive condition had, consequently, lapsed.
Given this problem, the appellant requested a further extension of the material date in order to provide the funds. A second addendum (“the second addendum”) was concluded on 20 February 2020 which sought to extend the material date further to 25 February 2020 by 09h00. The mortgage loan approval was eventually granted by Standard Bank for R1 500 000, with a further mortgage bond approved for R1 500 000 over an existing property owned by the purchasers. On 21 February 2020 the balance of the purchase price, being the sum of R1 950 000, was paid into DM’s trust account. The seller was then requested by the appellant ‘to desist from marketing the property as all the suspensive conditions had been fulfilled’. Soon afterwards, the Covid-19 pandemic swept across the world, causing financial strain on the purchasers and the appellant. As a result, the purchasers were unable to meet their financial obligations, and took the step to request Standard Bank withdraw their mortgage bond approval.
The appellant, having signed cession of the purchaser’s claim, therefore sought to recover the funds paid to the seller on the basis that the OTP had lapsed, and was not revived by the second addendum. The conveyancing attorneys, acting for the seller, did not agree. According to them, the second addendum had validly revived the OTP and, in turn, demanded specific performance from the appellant on the basis that, firstly, the suspensive condition had been fulfilled by way of transfer of the funds (as real security) and secondly, the bonds were approved on 24 February 2020 for the remainder of the purchase price. Following the failure by the respondents to remedy their breach, DM wrote to the appellant purportedly to cancel the OTP. The appellant thereafter launched proceedings in the Western Cape High Court, Cape Town claiming, inter alia, that the second addendum concluded on 20 February 2020 to extend the fulfilment of the suspensive condition, did not revive the OTP and was, accordingly, void ab initio. Consequently, the appellant was entitled to be repaid the R1 950 000 paid to the seller, plus accrued interest thereon.
IN THE SUPREME COURT OF APPEAL
Having lost in the High Court, and on appeal before a full bench, the appellant was granted special leave to appeal to the Supreme Court of Appeal (“SCA”). Before the SCA, the Court was tasked with the simple question of determining whether the second addendum had validly revived the OTP.
As was contended by the appellant in the High Court, the appellant persisted with the argument that, despite her requesting an extension of the OTP in order to secure payment of the purchase price, the second addendum did not revive the OTP, and thus there was no longer a valid sale agreement. The appellant further raised the argument that the word “Agreement” used in the second addendum, referred to the addendum itself, and not the OTP. In the opposite, the seller contended the second addendum had the effect of either reviving clause 7.2 of the OTP, or constituted a new agreement which complied with the formalities of the Alienation of Land Act 68 of 1981 (“the Act”) by incorporating and ‘reviving’ the terms of the OTP. This was plainly clear by the intention of the parties to continue with the sale.
The minority, referring to a litany of cases, held that the OTP had been validly revived by the second addendum and further, that this intention “was manifest by the parties before and after signing the second addendum”. In its judgment, the minority concluded that it was abundantly clear from the signing of the second addendum that the intention was always to conclude a sale and purchase of the property, which passes muster in relation to the formalities of its terms, the terms of the OTP and that of the Act. Accordingly, the minority would have dismissed the appeal.
On the other hand, the majority, per Schippers JA, held the contrary. It held that “if a condition is fulfilled, the obligations under the contract become enforceable. If the condition is not fulfilled, the contract becomes unenforceable”. This is the legal position that has been followed in a long line of authority, bolstering the position that suspensive conditions that have lapsed, cannot be revived by mutual agreement. Therefore, the majority held that whilst it may be accepted that the true intention of the parties was always to revive the agreement, the purported revival of the OTP, and the extension of the material date after the fact, is legally incompetent. This has been made clear in Pangbourne Properties Ltd v Basinview Properties (Pty) Ltd [011] ZASCA 20 (17 March 2011) where the same court, per Lewis JA, concluded that an alleged waiver was not only precluded by the express terms of the agreement but also concluded after the date by which the condition ought to have been fulfilled. Accordingly, the SCA in that case held that the agreement could not be enforced.
In coming to its findings, the majority concluded that there existed no agreement to revive the OTP, which ultimately rendered the revival unenforceable. Accordingly, the OTP, together with the second addendum, was declared invalid and unenforceable, and the Court ordered the repayment of R1 950 000, together with interest thereon, to the appellant.
This case illustrates an important reminder when signing sale and purchase agreements, especially in instances where the sale is subject to the standard suspensive conditions such as the securing of a mortgage bond or the finalising of architectural plans, that the parties must at all times keep to the terms of the agreement. In view of this, it is recommended that when parties are engaged in negotiations over the terms of the sale, the parties remain clear on the terms they must adhere to, to avoid a situation where an agreement is rendered unenforceable as a result of non-compliance. Any failure to extend the material conditions prior to the lapsing of that condition will require the conclusion of a brand new Offer To Purchase. The unfortunate result of this failure can cause detrimental prejudice for sellers in instances where purchasers get ‘cold feet’ when purchasing a property, and decide to withdraw from the sale altogether.
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