cancelling an offer
01 July 2008

Question:
I recently signed an offer to purchase a property with my wife and the bank has approved. However, the snag is that we are currently considering a divorce and if it goes through I will not be able to afford the repayments on my own.

If we decide to split can I then cancel the offer to purchase based on the fact that the offer was a joint application and that the repayment is unaffordable to us as singles?

Answer:
Strictly speaking the bank approved the loan because your joint incomes were sufficient to cover the bond.  Many individuals do joint property deals even if they are not married. The bank is not the issue here. Let’s say, for example, that you had already taken transfer of the house and then got divorced. You would have to sell it and split the proceeds if neither of you wanted it.

Your situation is a bit more precarious because of the costs already incurred and the unlikelihood of being able to sell the property for a profit after such a short time.  You don’t have to take the bank loan, even if it has been approved.

Your issue is with the seller and the agent. If you back out now the agent can claim her full commission and the seller will have a claim for damages. If the seller is really pigheaded about it they can take you to court and enforce the purchase (it will cost both parties a small fortune).  What you need to do is to appeal to their better natures (if they have any) and negotiate a release from the deal. The seller can release you as long as the property has not been transferred.  Test the waters, see how negotiable they are. If they are benevolent they may let you out of the deal.

Remember this is causing hardship for them, as they will have to change all of their plans. Maybe they were purchasing another home and it could now be in jeopardy.

If they dig their heels in you may have to offer to pay the agent's commission (that will be a given because the agent did his or her job) and perhaps part of the new commission for a second buyer.  Yes this will be a lot of money, but you need to weigh up the pros and cons. You could either face a long, protracted law suit and still be forced to take transfer, you could be sued by the agent and the sellers for damages or you could negotiate a settlement equitable to all parties.

You are the parties breaching the contract, so you do not have a very strong position.

Iona Minton,  www.personalfinance.iafrica.com