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Owner’s rights

Wednesday, 14 September 2011 09:25am

©The Star (Used by permission)
Articles of Law By Bhag Singh

Can an owner pull out of a deal to sell his property?

FOR one reason or another, a person may want to sell his property, whether a house or an apartment. It could be a need for the cash which prevails over the need to have continued ownership of the property.

However, having found a buyer and agreed on the price, matters may not proceed smoothly. After a prolonged exchange of correspondence in respect of the formal document which takes the matter well beyond the 14 days stated in the initial arrangement, the seller may well have second thoughts about going ahead with the deal.

A reader is faced with such a situation. He has told his lawyers that he does not want to go ahead with the transaction. However, he has been advised that since he has signed the offer to sell through the estate agent, he cannot pull out of the deal.

The Sale and Purchase Agreement has been prepared and signed by the purchaser, and now awaits the signature of the seller (our reader). However, this is months after the expiry of the 14 days stated in the initial arrangement.

Our reader says that since he is the owner of the property, why can’t he refuse to sell? Is it not his right to keep his property as long as he agrees to pay back the earnest money that he has received earlier?

The question of being an owner is not a very relevant consideration at this stage. When a sale is contemplated and negotiations entered into, parties enter into the arena of Contract Law and it is the applicable principles that will need to be addressed.

The question that arises is whether at this point in time, all the terms have been agreed to so that there exists what is in law referred to as a concluded contract. Where parties have signed a formal agreement, there would be clear evidence of a concluded contract.

The steps taken to sell the property bring into play contract law principles. When this happens, the relevant consideration is whether all the terms have been agreed to. Once this can be proven, a binding arrangement comes into existence and neither party can back out with impunity.

When a sale is effected through the services of an estate agent, the agent will ask the parties to sign a document to reflect the arrangement to sell and to buy, setting out the basic terms.

Usually there is a stated period within which the Sale and Purchase Agreement is to be signed, which in this case is 14 days.

However, such a document does not necessarily constitute something that is binding. This will depend on whether all the necessary terms have been set out and, by virtue of the signature, agreed to by both parties.

Such a document is more often than not, originally intended to create an initial commitment between both parties to work out the detailed terms and conditions which are incorporated in the formal agreement.

The document is also intended to record the role of the estate agent in bringing the parties together and confirm the commission that the estate agent is entitled to receive as well as when it is to be paid. Though in ordinary conversation, such a document may be referred to as a standard document, this is not completely accurate.

It may well be a document that is used by most of the estate agents in the industry but the terms are entirely for the buyer and seller to agree on, and most of the contents of such a document can be changed at the request of either party, subject to the other party agreeing.

Our reader also complains that even though the standard document signed with the estate agent provided for the Sale and Purchase Agreement to be signed within 14 days, it is now more than two months after the stipulated 14 days.

However, this by itself may not be a ground to refuse to proceed. This is because the continuation of negotiations after the earlier specified part would have negated the initial time line stipulated. In legal parlance, it means time is at large and the initial 14-day period can no longer be relied upon.

The matter therefore reverts to having to decide whether a legally binding obligation has been created. There is no simple answer to this. To find the answer, it would be necessary to examine the contents of all the exchange of communication that has taken place. The solicitor who is handling the matter would be in a better position to make an assessment.

Even then, one cannot be sure of the outcome because it will depend on the evidence produced and the view taken by the judge on a particular aspect of the law.

So can the seller refuse to go ahead? It depends on the seller’s situation. If he needs the money badly, he may refuse to be bogged down on account of a caveat being filed which would frustrate attempts to sell to someone else.

If the seller can afford to wait, then different considerations may apply. He would have to consider the implications if it is decided that there is a concluded contract. Does he merely return what has been received or does he pay double the amount?

The courts do not always look at mere technicalities but at the substance of the transaction.

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