When A Cash Purchaser Fails To Perform: What Happens If The Deposit Is Not Paid?

In South African property transactions, an Offer to Purchase ("OTP") is not a mere expression of intent. Once signed by both parties, it is a legally binding contract. However, problems frequently arise when a Purchaser who undertook to buy a property for cash fails to pay the deposit or purchase price within the timeframes stipulated in the OTP and then disappears.

So, what is the legal position when a cash Purchaser does not perform?

1. Is the Purchaser in Breach?

Yes.

Where an OTP requires a purchaser to:

• pay a deposit by a specified date; or
• pay the full purchase price in cash within a defined period;

failure to do so constitutes a material breach of contract, unless the OTP expressly provides otherwise.

Silence, avoidance of correspondence, or failure to respond to the Property Professional or Conveyancers does not excuse non-performance.

2. Does the sale automatically Cancel?

This depends entirely on the wording of the OTP.

(a) Automatic Cancellation Clauses

Some OTPs contain a clause stating that the agreement will automatically lapse or be cancelled if the Purchaser fails to comply with a suspensive condition or payment obligation by a specified date.

If such a clause exists:

• the agreement may terminate automatically, without further notice; and
• no acceptance of late performance is required.

However, automatic cancellation clauses are interpreted strictly and any ambiguity may require legal intervention.

(b) No Automatic Cancellation Clause (Most Common Scenario)

Where the OTP does not provide for automatic cancellation, the agreement does not fall away automatically.

In such cases, the Seller must follow the correct legal process.

3. What Legal Steps Must Be Taken?

Step 1: Place the Purchaser in Mora (Default)

The Seller (usually via the Conveyancers) must issue a written notice of breach (often referred to as a mora notice), which must:

• clearly identify the breach (non-payment);
• demand performance; and
• grant the purchaser a reasonable period to remedy the breach (commonly 7–10 days).

This step is crucial. Without it, cancellation may be unlawful.

Step 2: Cancellation of the Agreement

If the Purchaser still fails to perform within the time allowed:

• the Seller may lawfully cancel the agreement in writing; and
• reclaim the right to sell the property to another Buyer.

At this point, the Purchaser loses any contractual rights under the OTP.

4. What remedies does the Seller have?

Depending on the OTP and the circumstances, the Seller may pursue one or more of the following remedies:

(a) Cancellation and Damages

The Seller may cancel the agreement and claim damages, which may include:

• additional bond or holding costs;
• lost opportunities;
• wasted conveyancing and marketing expenses.

(b) Forfeiture of Deposit

If a deposit was paid (or partially paid), and the OTP allows for forfeiture:

• the Seller may retain the deposit, subject to the Conventional Penalties Act.

Courts retain discretion to reduce penalties that are excessive.

(c) Specific Performance (Rare in Practice)

In theory, a Seller may sue for specific performance, compelling the Purchaser to pay the purchase price.

In practice, this is uncommon, especially where the Purchaser is unresponsive or clearly unwilling or unable to perform.

5. Can the Property be resold?

Once the agreement is lawfully cancelled, the Seller is free to:

• remarket the property; and
• accept a new offer.

Selling the property before proper cancellation exposes the Seller to potential legal risk.

6. Key Takeaways for Sellers and Property Professionals

• A cash OTP is legally binding, but enforcement requires procedure.
• Non-payment does not automatically cancel the agreement unless expressly stated.
• A proper notice of breach is usually required.
• Silence from the Purchaser does not protect them.
• Early legal intervention prevents costly delays.

Final Thought

Property transactions move on timelines. When a Purchaser fails to honour a cash commitment and avoids communication, decisive and legally compliant action is essential. Sellers and Property Professionals should act swiftly, but correctly, to protect their rights and avoid unnecessary disputes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.