Suspensive Conditions in an Offer to Purchase: The Bond Approval Clause Explained

Very few property sales in South Africa are unconditional. Most offers to purchase are signed subject to at least one suspensive condition — usually that the purchaser obtains bond approval within a stated period. That single clause determines whether a binding sale ever comes into existence, and misunderstanding how it works is one of the most common, and most expensive, mistakes we see in property transactions.

What is a suspensive condition?

A suspensive condition suspends the operation of a contract until an uncertain future event occurs. Until the condition is fulfilled, the sale exists only in a provisional form: neither party can enforce the core obligations of transfer and payment. If the condition is fulfilled in time, the contract becomes fully effective. If it is not, the contract lapses automatically — it simply falls away, as though it had never been concluded.

The Supreme Court of Appeal confirmed the strictness of this principle in Africast (Pty) Ltd v Pangbourne Properties Ltd [2014] ZASCA 33. There, a suspensive condition required written notice of board approval within seven working days. The approval itself was granted in time, but the written notice arrived a few days late — and the court held that the contract had lapsed, even though the parties had carried on performing afterwards. Late fulfilment is non-fulfilment.

The bond approval clause

A typical bond clause makes the sale subject to the purchaser obtaining approval of a home loan for a stated amount, from a registered financial institution, by a stated date. Every element of that wording matters:

• The amount. Approval for less than the stipulated loan amount generally does not fulfil the condition, unless the clause caters for partial approval or the purchaser covers the shortfall in a manner the clause permits.
• The deadline. Fulfilment must occur by the stated date. There is no automatic grace period.
• The nature of the approval. Whether an approval in principle suffices, or whether a formal loan grant or quotation is required, depends on the precise wording of the clause.
• Conditions attached to the bond. A loan granted subject to unusual requirements may, depending on the wording, fail to satisfy the condition.

Because a sale of land must, under section 2(1) of the Alienation of Land Act 68 of 1981, be contained in a written deed of alienation signed by the parties or their authorised agents, the condition — and any amendment to it — must likewise be recorded in writing and signed.

What happens when the condition fails?

If the bond is not approved, or is approved too late or for too little, the agreement lapses automatically. No notice of cancellation is required, because there is nothing left to cancel. The consequences flow from the fact that no contract ever became fully operative:

• the purchaser is entitled to a refund of any deposit paid, which should be held in a trust account pending the outcome;
• neither party can claim damages or enforce the sale — non-fulfilment of a suspensive condition is not a breach of contract;
• the seller is free to accept another offer; and
• as a rule, no estate agent's commission is payable on a lapsed sale.

A lapsed agreement also cannot simply be revived by an extension granted after the fact. Once the deadline has passed unfulfilled, there is nothing left to extend: if the parties still wish to transact, a fresh written agreement complying with the Alienation of Land Act is required.

Extensions must come first — and in writing

Bond approval frequently takes longer than the two or three weeks allowed in a standard offer, particularly where valuations are delayed or the purchaser is self-employed. If the deadline is approaching, the time to act is before it expires. All parties must agree to the extension, and it should be recorded in a signed written addendum before the original date passes. A verbal assurance from an agent that the bank just needs a few more days extends nothing.

Fictional fulfilment: you cannot sabotage your own bond

A suspensive condition carries with it a duty of good faith. A purchaser who signs subject to bond approval must make genuine, diligent efforts to obtain the bond: submitting complete applications, providing the documents the bank requests and applying for the amount stated in the agreement. Our law has long recognised the doctrine of fictional fulfilment, which traces back to the Appellate Division's decision in MacDuff & Co Ltd (in liquidation) v Johannesburg Consolidated Investment Co Ltd 1924 AD 573: where a party deliberately prevents the fulfilment of a condition, in breach of that duty, the condition may be deemed to have been fulfilled against them.

In the bond context, a purchaser who develops cold feet and quietly withdraws the application, applies for the wrong amount or refuses to sign the bank's forms may find the condition treated as fulfilled — and themselves bound to a sale they were trying to escape.

Waiver of the condition

Where a condition exists solely for the benefit of one party — as a bond clause ordinarily exists for the purchaser — that party may waive it and proceed with an unconditional purchase, for example where other funds become available. But waiver, like fulfilment, must happen before the deadline and be communicated properly. Once the condition has failed and the contract has lapsed, there is nothing left to waive.

Practical guidance before you sign

• Be realistic about the fulfilment period — allow enough time for bank valuations and credit assessment, and slightly longer over holiday seasons.
• State the bond amount, the institutions and the type of approval required clearly and accurately.
• Diarise the deadline, and if more time is needed, sign a written extension before it passes.
• Keep proof of every bond application and of the banks' responses.
• Have the offer reviewed before you sign it — not after a dispute has already arisen.

We draft and review offers to purchase as part of our conveyancing services, and we advise both buyers and sellers when a suspensive condition has failed or is in dispute. If you are unsure where you stand, contact us before taking any further step.