In most cases your deed of sale will stipulate that in the event of the Purchaser being in breach of contract, the Seller will be entitled to retain the deposit paid to the conveyancing attorney. All contracts relating to the sale of immovable property makes provision for a breach clause that normally reads in the event of the Seller or the Purchaser failing to comply with the terms as set out in this agreement he or she will be in breach of the contract. The party in breach is then afforded a period of time to remedy such breach, failing which the contract is cancelled and then there is a misperception that such deposit may be retained and paid to the seller.
Most estate agents and clients are of the view that the deposit can be retained as damages and after the attorneys deducts his costs incurred these deposits are then paid to the Seller. The Seller retains this amount after cancellation of the contract as a result of the Purchasers breach and this conduct is regarded as lawful. This conduct is however UNLAWFUL.
Estate agents should be very careful in creating false impressions that the Seller will be entitled to these non-refundable deposits.
In the matter Matthews v Pretorius 1984(3) SA 547(W) the court considered section 3 of the conventional penalties act 15 of 1972. Any penalty or liquidated claim for damages contained in a contractual obligation will be subject to section 3 of the conventional penalties act which section reads:
If upon hearing a claim for a penalty it appears to a court that such penalty is out of proportion to the prejudice suffered by the creditor by reason of act or omission in respect of which the penalty is stipulated the court may reduce the penalty to such extent, as it may consider equitable under the circumstance. Provided that in determining the extent of such prejudice the court shall take into consideration not only the creditors proprietary interest but any other rightful interest that may be effected by the act or omission in question.
This applies to non-refundable deposits as the retention of certain amounts paid by the Purchaser as liquidated damages, court do not work out the actual damage when applying the act only to an extent that is just and equitable.
In another matter Tshikala & Another v Myburgh & Another 1215/12/2015 the court held:
Even if I am found to have erred in finding that the cancellation was unlawful the defendants would in any event not be entitled to retain the deposit paid by the plaintiff in terms of the penalty stipulation in the agreement. The delay in transfer, which ultimately placed the Plaintiff on terms in terms of clause 12 of the agreement, was caused by the bond attorney’s unreasonable demand for an Irish University to verify the place of residence of the second defendant when the plaintiffs complied with FICA 4 months earlier. The defendants by not testifying failed to demonstrate any prejudice suffered by them as a result of the plaintiff’s breach. The defendants in these circumstances plainly out of proportion of any loss possibly suffered the retention of the plaintiffs deposit and in my view it would be iniquitous to permit them to retain the plaintiffs deposit, thus the plaintiffs claim for the deposit minus certain deductions should succeed.
Conveyancers are often expected to act as judge and jury when dealing with breach of contract and the payment of such non-refundable deposits.
In the normal course of business an estate agents mandate will make provision for the payment of certain amounts as damages in case of breach, and the agent will if these clauses are worded correctly be entitled to their commission irrespective if the property is resold.
Sellers however will only have a claim if the property is resold or valued for an amount that is not high enough to nullify their damages.
The Purchaser runs the risk of the conveyancer withholding monies until the property is resold.
It is clear from the above-mentioned case law and act that conveyancers are NOT entitled to take the law into their own hand as decided in the Matthews case. A penalty must be agreed upon between the parties preferably in writing or the court should be approached to quantify the amount payable as damages.