IS THE END NEAR FOR BUY-BACK CLAUSES IN NEW DEVELOPMENT CONTRACTS?

A developer of a new development, often includes a buy-back clause in its sale agreement entitling the developer to reclaim the land sold should the purchaser not erect a dwelling within a specified time. The rationale behind this clause is to ensure that the development is completed within the developer's target timeframe and the courts have generally enforced these clauses.

However, In the recent matter of Bondev Midrand (Pty) Ltd v Madzhie and Others (63297/15) [2016] ZAGPPHC 1097 (19 December 2016), the property developer (Bondev) sold an unimproved stand to Mr Madzhie, who, in accordance with the deed of sale and the deed of transfer, was obliged to erect a dwelling within 18 months of concluding the agreement, failing which Bondev would be entitled to claim re-transfer of the property against payment of the original purchase price, interest free and at Mr Madzhie's cost. Mr Madzhie failed to erect the dwelling timeously and Bondev brought the application to the Gauteng division for an order that Mr Madzhie re-transfer the property in question in accordance with the deed of sale.

The court refused Bondev's application, taking the view that a purchaser of a residential stand in a township should not be forced to re-transfer a property on the grounds which was sought in this matter. The court raised objections to enforcing such a provision, citing that the clause was on the face of it either against public policy, or inconsistent with the purchaser's constitutional right to housing, amongst other things.

From this case, it is clear that the courts are becoming stricter with respect to enforcing buy-back clauses and a developer who intends to establish a new development, should consider obtaining the necessary legal advice prior to including such a clause in its deed of sale.

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