When Property Deals Fall Through – Unpacking Suspensive Conditions

In a recent decision, the Supreme Court of Appeal (SCA) once again emphasised the critical importance of legal formalities and clarity in property transactions. This appeal concerned a dispute over the sale of immovable property. The property in question was sold by the seller, represented by a law firm, the second respondent. The purchasers were the third and fourth respondents, who are the daughter and son-in-law of the appellant.

The case of Maria Luisa Palma Codevilla v Paula Jane Kennedy-Smith NO and Others (494/2023) [2024] ZASCA 136 (10 October 2024) provides a cautionary tale for both property buyers and sellers, particularly in the context of suspensive conditions and contract amendments.

Facts

Maria Luisa Palma Codevilla financially assisted her daughter and son-in-law, the purchasers, in acquiring a property valued at R5,150,000. The sale was subject to a suspensive condition requiring the purchasers to secure a mortgage bond of R4,950,000 by 14 February 2020, later extended to 19 February 2020.

However, the bond was not secured by the extended deadline, resulting in the agreement lapsing. The parties then signed a second addendum on 20 February 2020, which changed the financial terms and provided for a bank guarantee to be in place by 25 February 2020. The purchasers later faced financial difficulties due to the COVID-19 pandemic and withdrew from the deal.

Ms Codevilla, having already paid R1,950,000 on behalf of the purchasers, sought to recover her funds. She argued that the original agreement had lapsed and that the second addendum could not revive it. The High Court and later the full court held otherwise, finding that the agreement was either restored or validly extended. Ms Codevilla then appealed to the SCA.

Legal Principles

The crux of the matter before the SCA was whether the second addendum, signed after the suspensive condition was not fulfilled, could revive the original sale agreement, or whether a new contract was required altogether.

Key principles considered include:

1. Suspensive Conditions: If a suspensive condition in a contract is not fulfilled within the stipulated time, the agreement lapses automatically, unless the condition is lawfully extended or waived.
2. Revival of Lapsed Agreements: South African law does not recognise the revival of a lapsed agreement unless a new, valid contract is concluded, adhering to all statutory formalities—particularly those under the Alienation of Land Act 68 of 1981, which governs property sale agreements.
3. Formalities of Property Sales: Any variation or new agreement involving the sale of immovable property must be in writing and signed by the parties, in accordance with Section 2(1) of the Alienation of Land Act.

In a majority judgment, the SCA upheld Ms Codevilla’s appeal. The Court found:

• The suspensive condition was not fulfilled by 19 February 2020.
• The original agreement, therefore, lapsed.
• The second addendum, although intending to amend financial terms, was signed after the lapse and could not legally revive the lapsed contract.
• The second addendum did not comply with the formal requirements necessary for a valid new sale agreement.

As a result, the Court held that there was no enforceable agreement, and Ms Codevilla was entitled to recover the R1,950,000 she had paid, with interest. The seller and their legal representatives were ordered to pay her legal costs.

Conclusion

This case is a timely reminder of the importance of getting the basics right in property law. The best intentions and financial contributions can quickly be undone if the formalities are not met. Whether you’re a family member stepping in to assist or a professional adviser guiding clients, make sure every agreement is legally airtight from the outset.

Lessons for Buyers, Sellers and Legal Advisors

1. Understand Suspensive Conditions: These are not mere technicalities. If a suspensive condition is not fulfilled, the contract is void. Time is of the essence.
2. Reviving a Contract is Not Automatic: If an agreement lapses, a new contract must be drafted and signed—casual addendums or assumptions are insufficient.
3. Comply with Legal Formalities: Especially in property transactions, written and signed agreements are non-negotiable. Anything less can render a transaction unenforceable.

Before entering into addenda or changing financial arrangements, consult legal professionals to ensure compliance with the law. Contact an expert from SchoemanLaw Inc.