INSIGHTS

Many prospective sellers of immovable property know, as should any estate agent, that by law building plans should be available for any structures on the sale property. In this context “building plans” means copies (or originals) proving that updated (“as-built”, i.e. dealing with all existing structures) building plans have been approved by the local authority and registered as such in their records.

This does not mean that the sale or transfer of property without building plans is illegal. It is not essential that the contract deals with the issue, provided both parties are happy for the property to change hands without building plans. However, numerous court cases and online articles that deal with the problems associated with the lack of building plans, warn of sale transactions souring, parties litigating or banks withdrawing home loans. 

THE PROBLEM

This article will focus on the scenario where both parties are aware of the lack of building plans and by mutual agreement proceed to contract on the basis that building plans need not be made available to the purchaser. However, the purchaser requires a bank loan and the usual suspensive condition (that a bond is to be granted for the agreement to come into existence) appears in the contract so as to protect the purchaser if a sufficient loan cannot be raised. What happens if the suspensive condition is prima facie fulfilled by the grant of a bank loan (or the purchaser’s acceptance thereof – depending on the wording of the sale agreement) which is subject to the condition that updated building plans are to be submitted to the bank?

The situation could be legally and practically complex. The question of whether the suspensive condition has been fulfilled in instances where a bond was granted and/or accepted, subject to a challenging condition such as delivery of updated building plans, does not have a hard and fast answer in law. Court cases giving clear guidance on comparable sets of facts are rare. In cases where facts approaching comparability were considered, the courts appear to have relied heavily on mechanisms such as the parties’ respective burdens of proof to assist them. However, for purposes of this discussion it is assumed that the parties consider themselves bound by the sale agreement as being unconditional since the suspensive condition is deemed fulfilled. Here are some scenarios:

1. When the purchaser realises that the bond condition cannot readily be fulfilled, he could decline the bank’s offer, or resile from the loan if already accepted, and try to obtain alternative finance, possibly at a less favourable interest rate. The bond attorney could then charge wasted costs. The process could add a few weeks to the overall transfer process and there is of course no guarantee that another bank will not similarly call for building plans. 
    
2. The parties could cancel the sale by agreement. This could, for example, occur where the purchaser considers that the interest rate is in any event too high, or that other bond conditions are unfavourable, and the seller is not willing to accept the delays caused by compliance with the relevant local authority regulations governing the registration of updated building plans. Here, the most dangerous drawback could be the estate agent’s justifiable claim for commission, levelled at either seller, purchaser, or both jointly depending on the agreements involved.
    
3. Either party could cancel of its own accord and face the music associated therewith.
    
4. The parties could decide to continue the transaction and try to give effect to both the sale agreement and the bond terms by procuring updated building plans. This might involve an amendment of the sale agreement to provide for an extension of the guarantee date, and possibly a splitting of the costs involved depending on the circumstances and eventual decision of the parties. In this instance, should any structural alterations to the property be required, the seller will probably be liable for covering these costs. Aside from such a possibility, the costs associated with the drafting, submission and registration of the plans will have to be addressed between the parties.

Also, the time that is likely to be required to fulfil the bank’s requirement could become a serious factor for either or both parties. One such example would be where the purchaser’s creditworthiness changes for the worse in the interim, to such an extent that, on re-assessment, he no longer qualifies for the loan. 

Other looming spectres include the possibilities that: a) municipal building lines or sewer lines have been encroached on, which will require special consent (at the very least) from the municipality to be sorted out; or b) sectional title plans have to be amended. This could cause serious complications, depending on the facts. Duet owners, beware! (Most duets are technically sectional title units).

So it stands to reason that even if a splitting of costs could be agreed upon, the seller will clearly be a long way from the position he expected to be in or could have been in at the outset had he sold the property to a different purchaser.

PROPOSAL

Prevention is surely better than cure? The offer to purchase could be crafted more clearly to obviate the problems outlined above. Firstly, one should take care to specify what exactly is required for fulfilment of the suspensive condition: Will it be approval in principle of a loan, or actual acceptance of a loan offer by the borrower? To provide for acceptance of a loan opens the way for further fine-tuning of the agreement by, secondly, insertion of a special clause along the following lines:

BUILDING PLANS

1. The Seller records that the building plans are not updated and the Seller will not obtain updated building plans for the property.
    
2. In the event that the Purchaser is desirous to accept a quotation from a financial institution that has imposed a condition on the Purchaser to provide such financial institution with approved building plans for the property, the Purchaser will consult with the Seller prior to accepting the quotation and the Seller must consent to the Purchaser accepting such quotation provided that the Purchaser obtains the updated building plans for the property at their own cost. There will be no obligation on the Seller to consent to such acceptance. In the event that this agreement lapses due to the Seller electing not to consent to Purchaser’s acceptance of such quotation, the parties will have no further claims against each other and the agent will likewise also not have any claim for commission or compensation against any party.

CONCLUSION

People will probably always keep building and altering their property without the required statutory approvals. The possibility of updated approved plans being required is not one that is remembered at building stage. The sooner drafters of offers to purchase endeavour to address the issue of building plans adequately, the better for all involved.