When Does An Offer To Purchase Lapse?
Congratulations! You’ve found your dream home or property investment and put in an Offer to Purchase (OTP).
But amidst the excitement, a crucial question lingers: when exactly does this offer lapse?
Understanding the validity of your OTP is essential in the buying process.
An OTP acts as a legally binding contract outlining the terms of agreement between you and the seller.
Knowing the circumstances under which an offer can lapse is vital for your success in the property game
Real Life Example
A quick story…
Early in my property career (probably around 2005) I put in an offer on a house I wanted to buy as an investment.
It was only my second property purchase and being as excited and ignorant as I was, I had the agent complete the offer for me and just signed it.
(Side note: this was the first time I used an agent to buy a property because my first property investment was an off-plan townhouse that I bought directly from the developer. So this experience was very new to me)
I trusted that the agent had my best interest at heart.
I waited patiently for several days for the Seller to accept my offer, because after all, I offered the asking price.
Weeks past and I kept following up with the agent to find out if the Seller accepted.
Eventually he told me the property got sold.
I found this very strange because they didn’t ever come back to me after almost 2 months
To this day, I don’t think the agent actually presented my offer to the Seller
And even if the Seller did see the offer, there was no rush for him to sign it.
You see, In all my excitement I didn’t spot that the agent did not include an expiry date on the offer.
The offer was open ended. So they probably used it to get higher offers from other buyers knowing that if any of those offers fell through they could still fall back on my “still valid” offer.
A court would only be able to determine what a “reasonable” amount of time was before the offer would be deemed to be “expired”
A big benefit for the estate agent and the Seller.
Not so good for me.
This is a good practical example of why an expiry date on your offer to purchase will save you headaches, time and money
So let’s cover 5 situations of when an offer can lapse.
1. Timeframe Of The OTP
There is usually a blank space towards the end of most offer documents where you would specify a date until which the Seller has to accept your offer.
If you do not specify an expiry date, the offer will lapse/expire after what is considered a “reasonable period”, which in turn is dependent on the circumstances of the parties to the agreement.
To avoid complications it is very important to always specify an expiry date in all your offers (as you just read from my personal story above).
2. Understanding Revocation
Another circumstance under which an offer can lapse is when a purchaser revokes the offer at any time before the Seller accepts it.
This is of course unless the offer specifically states that the offer is “Irrevocable” for a certain period and it must then be brought to the attention of the Seller within that period.
If the Offer has not been presented to the Seller, the purchaser is free and able to revoke the offer, even if the offer is stated as being irrevocable.
3. Rejection Of The Offer
If a Seller rejects your offer , the offer lapses and cannot be be accepted thereafter.
Should a counter offer be made on the original offer, it means the original offer was rejected.
A rejection of an offer thus means the offer has lapsed an is of no force or effect.
4. Death Of The Seller Or Buyer
If either of the signatories of an offer to purchase dies before the other party accepts the offer, the offer will lapse and be of no force or effect. This applies if the signatory is an individual.
However if it is a juristic entity (company or Trust) the offer will remain in force.
If a signatory to the offer dies AFTER the agreement is signed, the obligations and duties specified in the contract will pass onto the estate of the deceased.
5. Non Fulfilment Of Suspensive Conditions
In some agreements, there may be suspensive conditions added, which means the offer is “subject to” these conditions being met.
There might a due diligence condition which allows the purchaser time to inspect various aspects of the property.
If the purchaser is not satisfied with the outcome of his due diligence the suspensive condition gives him the right to cancel / revoke the deal due to non fulfilment of the suspensive conditions.
In Closing
Remember, an OTP is a legally binding document.
While this article provides a general overview, consulting with a qualified conveyancer is highly recommended for a comprehensive understanding of OTP validity and its legal implications in your specific situation.
Aslam is from Johannesburg, South Africa and graduated with a BComm degree from the University of South Africa and followed that up with a BComm Hons degree in Finance and Investments.
He has spent over 18 years in the financial services sector, with 12.5 years in the commercial property finance arena with 3 of the major banks in the country.
His specialty being deal structuring and finance solutions for commercial property investors and developers across the commercial property sector, including large scale retail developments, high density residential investments , industrial and office property.
Aslam was also a fast food franchise investor for 7 years, is experienced in digital marketing and online lead generation and has owned and managed multiple residential properties.
