CLOSING THE LOOPHOLE ON BANK FINANCE APPROVALS WHICH PRECEDE PRE-AGREEMENT STATEMENTS AND QUOTATIONS IN TERMS OF THE NATIONAL CREDIT ACT, 2005

It has come to our attention that a number of the major South African Banks are now issuing documents called “a grant quotation”, “an offer issued in respect of a mortgage loan” and certain other documents in terms of which the Banks preliminarily approve a loan to be secured by the registration of a mortgage bond over a property subject to a number of conditions. We are of the view that Banks are likely adding this step, in order to mitigate incurring finance charges when funds are allocated and set aside in respect of approved loan finance. These approvals specifically record that such approval is not a pre-agreement statement or quotation (in terms of the National Credit Act) and therefore such approvals are not catered for in terms of those standard sale agreements which ordinarily deem a pre-agreement statement or quotation to fulfil the suspensive condition relating to a bond grant.

The risk of not contractually addressing this step/approval is that the suspensive condition will not be deemed to be fulfilled. As such, should the purchaser after receiving such in principle approval not proceed with progressing the financing from the Bank or frustrate the obtaining of such finance for example by not providing the Bank with the necessary documents as requested, the suspensive condition will not be fulfilled and the deal will lapse. We suggest the inclusion of the following clause in your agreement of sale in order to provide the parties with certainty, and to close out this loophole:

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