Law Reports

Binding options

Kretzmann v Kretzmann and Another [2019](2644/2018) [2019] ZAECPEHC 54 (27 August 2019)

Mini Summary:
According to the plaintiffs, their attempts to purchase immovable property from the defendant in 2013 were thwarted by their inability to obtain a bond. They alleged that they concluded an oral agreement with the defendant in terms of which he undertook to raise the capital and to purchase the property in his own name, but for their benefit, which he duly did. The property was accordingly registered in the name of the defendant.

The plaintiffs’ case as pleaded, was therefore founded on an oral agreement in terms of which the defendant granted them an option for a period of five years to purchase the property on certain terms which were orally agreed upon by them. Based on the agreement, they purported to exercise the option by the delivery of a signed deed of sale.

The defendant raised an exception, alleging that the particulars of claim lacked averments necessary to sustain a cause of action as the oral option agreement relied on by the plaintiffs was not in compliance with section 2(1) of the Alienation of Land Act 68 of 1981.

Held that the sole issue which arose at the present stage was whether the agreement contended for was required by law to be in writing for it to be enforceable.

Section 2(1) states that “no alienation of land after the commencement of this section shall be of any force of effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority”. An option to purchase is made up of two distinct parts, namely an offer to purchase and an agreement to keep that offer open, usually for a fixed period. The undertaking to keep the offer open (the option agreement) is of course a pactum de contrahendo. It is not an alienation as envisaged in the Act and is not required to be in writing. The offer, however, which the pactum has undertaken to keep open, must be a firm offer which will result in a binding contract when it is accepted.

By virtue of the provisions of s 2(1) of the Act an offer resulting in the sale of land can only bring about a binding agreement upon acceptance if it is in writing. In this case, the plaintiffs’ case, as pleaded, was that both the option agreement and the agreement relating to the terms upon which the sale would occur were orally concluded. An option of that nature relating to land cannot be validly exercised, whether orally or in writing.

The exception was upheld and the plaintiffs were afforded 30 days to amend their particulars of claim.

Full judgment

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