In South Africa, parties tend to rely on verbal agreements of sale as the law recognises. Even though our law may recognise verbal agreements, they are still quite difficult to prove when disputed. This article aims to identify why written agreements should be entered into and the benefits of one drafted by a legal professional, especially when the alienation of property is considered. Staggered sales or instalment payment sale agreements are a common occurrence, however, ensuring that both parties are bound by the agreement and not unnecessarily frustrated are essential.
There are two types of contract of sale which are similar in nature, but which may suit the purposes for which parties seek to contract differently. The first being that of instalment agreements and the second a staggered sale. Instalment agreements allow for the Purchaser and Seller to contract on the basis that the Purchaser takes possession or is allowed to exercise limited power or control over the object of sale from the onset of their agreement. This is a common occurrence in the sale of motor vehicles. This practically reflects as the Purchaser being allowed the use and enjoyment of the object from the first instalment and the Seller having limited to no power or control over the object. The Purchaser may be afforded the right to make use of the object from the onset of contracting and will only be afforded the full rights of alienation and disposal of the object of sale upon payment of the final instalment.
A staggered sale agreement puts the Seller in a position of more power as opposed to the Purchaser unlike with instalment agreements. A staggered sale occurs where both the Seller and Purchaser are prohibited from enjoying the full use and enjoyment of the object of sale from the first payment up until the final payment. The Seller is restricted from alienating the object of sale once the staggered sale agreement is entered into and the Purchaser is restricted from the full use and enjoyment of the object of sale until the final payment has been satisfied. This may occur where the sale of shares is contemplated. Practically this is reflected by the full ownership rights and powers only being vested in the Purchaser upon the payment of the final instalment, the effective date.
The second type of sale agreement is clearly beneficial to Sellers as it allows them to maintain power they would otherwise have lost, had they entered into an instalment sale agreement. This agreement ensures that the Seller is not frustrated by a Purchaser who pays the first few payments due, but not the full purchase price, yet enjoys the full use and enjoyment of the object of sale. This will ensure that the Purchaser is incentivised to satisfy the terms of the payment agreement and that the Seller maintains certain powers in order to enforce the agreement should the Purchaser default upon the agreement.
These examples clearly indicate that a purchase agreement should be drafted by a legal professional who is able to ensure that your rights are both protected and enforced.
Contact us and we will advise you on how to structure your contracts of sale and draft them for you in a manner that ensures its enforceability and that your rights are upheld.