Right of extension in a sectional title scheme: Beware of the right to cancel a sale agreement

If you are the seller of a property in a sectional title, or a property broker who has spent many hours putting a sale transaction together, the last thing you want is for the buyer to find an easy way out of the contract. If the contract of sale relating to property in a sectional title is not drawn up correctly, you may, however, find yourself in a situation where the buyer has a legal right to cancel the contract.

The Sectional Titles Act governs sectional title schemes which can include townhouses, flats and duets. Quite often, the developer of such a sectional title scheme, will, when opening the scheme, reserve for himself a right to add additional units to the scheme in what is called a ‘right of extension.’ According to the Sectional Titles Act, if such a right of extension is reserved, this must be disclosed to any person who buys a unit in the scheme, and ideally this fact should be disclosed in the contract of sale.

If the right of extension is not disclosed in the contract of sale, it must be disclosed to the buyer in writing before the property is transferred into his name, and the conveyancing attorney who deals with the transfer will have to certify that the buyer was made aware of the right to extend and opted to continue with the sale transaction. If not disclosed, the contract of sale is voidable at the option of the purchaser. For example, if a right of extension is not disclosed and the buyer, after the signing of such contract, opts not to continue with the sale, the contract of sale will be cancelled as being void.

Very often sellers and brokers are not aware of the impact of this legislation, and contracts are drawn up without providing for this notice to the purchaser. It may also happen that the conveyancer only becomes aware of the existence of such a right at quite a late stage in the transaction, and he is then still required to disclose such to the purchaser to ensure compliance with the Sectional Titles Act. If the particular purchaser then suffers from buyer’s remorse or is looking for a way out of the transaction, this may afford the perfect opportunity for an exit without being in breach of contract.

So sellers and brokers should take note of this potential pitfall and obtain advice regarding a proposed contract of sale to ensure that the necessary provision is made for notice to prospective purchasers of any right of extension that may exist.

February 20, 2013
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