Every now and then we encounter a situation where a bank withdraws a bond that was previously approved, due to a change in the Purchaser’s financial position.
Once the bond has been granted and the suspensive condition in the sale agreement in this regard has been met, the subsequent withdrawal of the bond by the bank does not turn back time. The sale agreement will remain conclusive and valid and the Purchaser cannot rely on the withdrawal to declare the sale agreement as lapsed or cancelled.
The standard terms and conditions of bond grant usually provides that the bank may withdraw the bond at any time before registration of transfer. This means that when a Purchaser accepts a bond grant on the standard terms and conditions offered by the bank, The Purchaser accepts the risk that the bond may be withdrawn before registration of transfer.
After a withdrawal of a bond, the Purchaser will be unable to proceed with the purchase of the property unless the Purchaser is able to source the funds from elsewhere. Where the Purchaser is unable to do so, the Seller will be forced to place the Purchaser in breach and either claim for specific performance alternatively the Seller will need to cancel the sale agreement. In either case, the Purchaser will be liable to pay damages resulting from his/her breach of contract. These damages may include estate agent commission, wasted attorney’s costs and actual financial damages suffered by the Seller (such as, inter alia, the difference between the purchase price if the property is sold at a lower price in the future).
Although impossibility of performance is an excuse for a breach of contract where a change in circumstances makes it impossible for a person to perform under a sale agreement (provided that there was an intervention of an unforeseen event that was not as a result of any fault on the part of the person who becomes unable to perform), this principle has never been used in our law to aid a Purchaser whose bond was subsequently withdrawn.
The only sure way to protect the Purchaser against this situation is to insert a special clause in the Sale Agreement that provides that the Sale Agreement will lapse if the bond is withdrawn after the initial approval but this clause will have to be very carefully drafted to ensure that it doesn’t just create an opportunity for a clever Purchaser to achieve an exit from the sale agreement and I doubt that any Seller would accept such a clause because of the uncertainty that it will create during the transfer process.
As a result, every Purchaser assumes the risk involved that the bond may subsequently be withdrawn and there is not much that can be done in this regard to protect the Purchaser.
