Ratification Clauses in Property Sale Agreements

The importance of a Ratification Clause in a Property Sale Agreement

A Ratification Clause allows a seller to continue marketing their property after receiving an offer and to accept a second offer if certain requirements are met and the required notice is given to the purchaser who made the first offer. Ratification Clauses come into play when a sale agreement contains suspensive conditions.

What is a Suspensive Condition?

A condition which suspends the operation of an agreement of sale until the specific condition contained in the agreement has been complied with. If the condition is not met within the required time frame, the agreement lapses and is not enforceable.

The most common examples of a suspensive condition in a property sale agreement are mortgage bond and sale of purchaser’s property conditions.

Here is an example of a standard Ratification Clause in an Offer to Purchase:

SEVENTY TWO HOUR RATIFICATION

Prior to the fulfillment of the suspensive condition contained in clause _ the Seller shall have the right to continue marketing the Property and in the event of a more favourable written offer (the Seller in its sole discretion decides whether such offer is more favourable) being received from a third party, the Seller shall notify the Purchaser in writing together with a copy of the written offer, giving the Purchaser 72 (SEVENTY TWO) hours notice to waive or fulfill the suspensive condition.  Should the Purchaser fail to give written notice of such waiver or fulfillment the Seller shall be entitled to cancel this agreement forthwith.

There is no rule about exactly what the clause must say, so always be sure to check the content of the Ratification Clause in the contract you are dealing with. The time frame could be longer or shorter, the clause could require the second offer to be unconditional, basically the clause can be drafted with a number of variations and still be proper. In this example you will note that the Seller is given discretion to decide when a second offer is considered more favourable. This could mean that an offer for the same purchase price, but where the purchaser does not require a bond or requires a smaller bond could be considered more favourable to the Seller.

What is the effect of a Ratification Clause:

1. The Seller can continue marketing the property after an offer has been received;
2. The Seller can accept a second, more favourable offer, if the required notice has been given to the first purchaser and the first purchaser has failed  to waive or fulfill the suspensive condition in the time provided in the notice; and
3. If the first purchaser waives or fulfills the suspensive condition within the required time, the agreement will become immediately binding and enforceable.

It is clear from the above that it is in the best interests of the Seller to ensure that their sale agreement contains a ratification clause.

What happens when there is no ratification clause in a contract?

Should the agreement not contain a Ratification Clause, the seller will need to allow the full time period contained in the suspensive condition to run before he will be in a position to accept the second offer. Should the time period run and the first purchaser not fulfill the suspensive condition, the agreement will lapse and further offers can only then be considered or accepted by the Seller.

It is vital to have a properly drafted Ratification Clause and to have your Offer to Purchase or Sale Agreement looked over or drafted by an Attorney and preferably a Conveyancer. At Pagdens, our Conveyancing team is always ready to assist clients by considering drafted Offers to Purchase or by drafting Agreements or Offers from scratch. Get in touch with us and let us ensure your paper work is in order and all necessary aspects of your deal have been considered! Follow us on Facebook and LinkedIn for more articles and posts.

This article is for general information should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact an attorney for specific and detailed advice. Errors and omissions excepted (E&OE)