At STBB, our property law attorneys have extensive experience advising sellers and purchasers on the intricacies of sale agreements and structuring property dealings. In the context of property and commercial transactions, options to purchase and rights of first refusal are commonplace and are construed as ‘contracts about contracting’. While these concepts may appear similar, they carry distinct legal consequences.
Option to purchase
Under South African law, an option to purchase gives one party (‘the grantee’) the irrevocable right to purchase immovable property from the owner (‘the grantor’) at a predetermined price for a defined period of time.
While the option binds the grantor to accept the offer and sell the property to the grantee, it does not obligate the grantee to exercise the option. As such, the grantor cannot revoke or withdraw the option during the stipulated period without the consent of the grantee. However, once the option is exercised, a legally binding sale agreement comes into existence.
Right of first refusal
Contrastingly, a right of first refusal – or pre-emptive right – obligates the owner (‘grantor’) to offer their property to a specific person (‘grantee’) if and when they decide to sell. In this instance, the grantor is not permitted to sell the property to a third party without first giving the grantee an opportunity to purchase it under terms and conditions no less favourable than those offered to the third party. If the grantee exercises this right, the grantor is obliged to sell the property to them. If the grantee declines, the grantor may proceed with a third-party sale.
Importantly, an option to purchase and a right of first refusal must comply with certain formalities to be legally enforceable, namely it must be in writing, be signed by the parties, contain a legal description of the property, and specify the consideration payable.
Are you interested in purchasing or selling property and are unsure of the legal requirements? At STBB, our experienced team of property lawyers are available to draft and review comprehensive property agreements – whether a sale agreement, an option to purchase, or a clear clause confirming your right of first refusal.
For expert legal guidance in property matters, contact our conveyancing attorneys at info@stbb.co.za today.
The author previously wrote a version of this article for STBB’s social media platforms.
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