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Mostert

5 April 2007

A case note from Millers regarding the validity of an alleged agreement that had been concluded to purchase immovable property, in terms of an option that had been granted to the alleged buyer in a lease agreement.

Exercising Options to Purchase

Mostert/Van der Weshuizen and Another (CPD) - Date of Judgement 28 March 2007; Per; Griessel, J

In the Cape High Court, Justice Griessel delivered a judgement on 28 March 2007 regarding the validity of an alleged agreement that had been concluded to purchase immovable property, in terms of an option that had been granted to the alleged buyer in a lease agreement.

Simply put, an option is an unconditional and irreversible right that is given to a person to buy a certain property within a certain time, at a predetermined price. The option is then exercised in writing by the purchaser, by simply advising the seller that he is now exercising the option, and in doing so, the sale is concluded. The seller may not refuse to then conclude the agreement.

In the present matter, Mr Mostert had leased certain land to a company, in terms of which lease the company was granted an option to buy the property during the duration of the lease, at an agreed sum, subject to an annual escalation. On a certain day, during the existence of the lease, the company's attorney then sent a letter to Mr Mostert indicating that his client had decided to exercise the option, and attached a draft Deed of Sale. The covering letter invited Mr Mostert to make such changes to the Deed of Sale as he thought might be necessary, and if he were happy with it in its present form, to please sign it and return it to the attorney for his client's signature. Several months went by and the company heard nothing. After the lease expired, Mr Mostert wanted his property back. The company however refused to vacate the property on the grounds that it had exercised its option in terms of the lease. Mr Mostert then sued the company for eviction. The company defended the claim on the basis that it was entitled to the property on the basis of having exercised the option.

Mr Mostert then raised a point in law which he referred to the Court to be determined as a separate issue, namely that the option had in fact not been properly exercised, in that the proposed Deed of Sale that was sent to him contained a clause stating that the agreement would be subject to the company being able to obtain a bond from a financial institution first, within a certain time. In other words, the option was not properly exercised because the proposed Deed of Sale contained a suspensive condition.

The company argued that the condition that was attached was merely one of several terms and conditions that needed to be negotiated, and that this condition did not affect the question of price but only the manner of payment. The company also argued that Mr Mostert should have simply replied and stated that he was not prepared to make it subject to bond approval, and this clause could have been removed - as Mr Mostert had been invited to do in the attorney's letter.

Mr Mostert however argued, and the Court agreed, that firstly there was no duty on him to supplement any shortcomings in the draft Deed of Sale, and secondly, that when one exercises an option, it must be completely in line with the option that was granted - above all, it must not introduce terms or conditions that were not part of the original option. In this case the option was simply worded in the lease, namely that the company would be entitled to buy the property at a certain price, within a certain period of time. No other terms or conditions were attached. As such, irrespective of the company's best intentions, by law, the option was not exercised. As such the company's defence was ruled out.

Website: millers.co.za

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