In South Africa, the sale and transfer of land is regulated by the provisions of the Alienation of Land Act 68 of 1981, as amended, ("the Act"). The Act is designed to protect the interests of both the seller and the purchaser and to ensure that a sale of land is conducted fairly and transparently. One of the key provisions in the Act is section 2(1), which deals with the formalities required for the alienation of land. This provides that, for a sale agreement to be considered to be of any force or effect, the sale agreement must be reduced to writing and signed by both the seller and the purchaser, or their agents duly authorized to act on their behalf.
The sale agreement then becomes a legally enforceable contract between the seller and the purchaser which sets out the various terms and conditions that each party is required to comply with. In an instance where a party has failed to perform or where a condition has not been met within a specified time, the sale agreement can lapse due to the failure to perform or noncompliance with the condition. However, the lapse of the sale agreement does not necessarily mean the end of the transaction, as parties may opt to execute a “revival” of the lapsed sale agreement. The revival of lapsed sale agreements has in the past been contentious due to questions on whether the revived sale agreement is legally valid and enforceable.
In the case of Compu-cool (Pty) Ltd v Silver Dawn Investments 168 CC and Others (unreported case no 39651/2020 of 03/09/2021 (JHC)), the court considered whether an agreement to revive a lapsed sale agreement is legally binding and enforceable.
Briefly, the facts of the matter are as follows: on 8th May 2020, the seller and purchaser entered into a sale agreement for the purchase of land (“the initial agreement”). The sale agreement was reduced to writing and signed by the respective parties. It contained a suspensive condition in terms of which the purchaser would obtain a loan from a financial institution within 31 days of signature of the sale agreement. The purchaser failed to obtain a loan from a financial institution within the specified time and the sale agreement consequently lapsed. However, on 11th August 2020, more than 90 days from date of signature by the parties of the initial agreement, the parties agreed to reinstate the sale agreement by executing a revival and amendment agreement (“the revival agreement”). This subsequent agreement sought not only to revive the initial agreement, but to amend the initial agreement by providing for payment of the purchase price in the form of a lump cash amount, subsequent monthly payments, and payment of occupational rent until registration of transfer. The revival agreement sought to incorporate, by reference, all remaining terms and conditions contained in the initial agreement.
After the purchaser had paid the initial deposit and one monthly payment, it decided not to proceed further with the transaction. The purchaser’s attorneys defended this decision by arguing that it was not possible to revive an agreement that had already lapsed, and that the execution of the revival agreement amounted to an addendum to the initial agreement. In response, the seller’s attorneys agreed that, although the initial agreement had lapsed, it had been revived and argued that the revival was validly executed, legally enforceable, and complied with the provisions of the Act.
The court held that it is common cause that the suspensive condition was not fulfilled within the specified time period and, as a consequence, the initial agreement was not legally enforceable. In the decision of Fairoaks Investment Holdings (Pty) Ltd. and Another v Oliver and Others (268/07) [2008] ZASCA 41 (28 March 2008), to which the court referred, it was held that, should there be non-fulfilment of a condition, a sale would lapse by operation of law and be deemed void ab initio. In Compu-cool, because the suspensive condition was not fulfilled, it was not possible to revive the initial agreement.
In relying on section 2(1) of the Act the court indicated that, although the parties had intended to revive the initial transaction, which was not possible, the act of concluding the "revival agreement" which amended terms of the initial agreement (the terms of which, if unchanged, would automatically render the agreement void ab initio) amounted to the execution of a substantive and new sale agreement. In accordance with section 2(1) of the Act, the revival agreement acknowledged that the original agreement had lapsed, annexed this original agreement to the now amended agreement, and incorporated by reference the terms of the original agreement save for the amendment to the payment method. This revival agreement was signed by both the seller and the purchaser and ultimately could be considered the entire understanding of the parties and as such a whole new agreement. It was therefore deemed to be legally binding and enforceable.
In conclusion, it is not uncommon for sale agreements to lapse due to noncompliance with one or more conditions, resulting in the sale agreement becoming unenforceable. However, should the parties wish to “revive” a sale agreement, parties are advised to ensure compliance with the Act, and specifically section 2(1) thereof, to guarantee that the new agreement is legally valid and enforceable.
