Introduction
An agreement of sale is an important document used almost daily in transactions. Things sold vary widely from immovable properties, movable properties and even intangibles. In this article I wish to highlight some of the key provisions to watch out for in agreements of sale.
Key provisions in agreement of sale
Parties
Like in any agreement, the parties ought to be captured correctly with details as per registration documents. For natural persons / individuals use full names, date of birth and ID number per registration documents. For juristic persons such as companies use details as per the registration companies, such as the full registered name and registration number.
Preamble
The preamble gives background information or context to the agreement of sale. It is advisable to include that.
The transaction
The transaction being undertaken by the parties should be clear to all. You may find wording such as “the seller hereby sells to the purchaser who hereby purchases the ….” or “the seller offers to sell to the purchaser who hereby accepts to purchase from the seller the ….”. This establishes offer and acceptance.
Asset being sold
The asset being sold should be described so that it is identifiable. In the case of immovable property you use details per the deed of transfer or cession documents. For motor vehicles it is common to quote the registration number, chassis number and engine number. For machines parties may also quote the serial number.
Purchase price
The purchase should be clearly stated. The price includes the currency and the amount in both figures and words. It should be clear whether the price includes or excludes taxes.
Payment terms
The payment terms can easily be a source of dispute or breach. The payment terms ought to be stated very clearly so that both the seller and the purchaser have the same understanding.
Currency of the agreement
It may be important to state the currency of the transaction and what may happen in the effect of currency changes.
Transfer / delivery
The agreement should state when the purchaser takes transfer or delivery of the asset, for example upon payment of the full purchase price.
Breach
An agreement of sale should state what amounts to breach. Some agreements state what amounts to material breach. In addition they state what happens in the event of breach or breach that has not been rectified. It is common for agreements to state that in the event of breach the aggrieved party shall give the defaulting party written notice to rectify breach within a certain number of days. If breach is not rectified within that period then the aggrieved party reserves the right to summarily (immediately) terminate the agreement of sale or sue for specific performance.
Dispute resolution mechanism
This provision is critical but many people do not pay attention. The clause may provide for dispute resolution through negotiate, conciliation, mediation, arbitration or through litigation. Many people hardly pay attention only to regret when there is a dispute. Some may approach the court without exhausting arbitration, for example.
Termination
Parties may also have disputes over termination of an agreement of sale. The clause usually provides for circumstances leading to termination and consequences of termination. Circumstances leading to termination may include:
- By mutual agreement of the parties.
- If it is no longer possible to implement the agreement.
- In the event of material breach that has not been rectified.
In the event of termination it has to be clear what happens, for example:
- Restitution.
- Currency of restitution
- Any damages particularly in the event of breach.
Conclusion
An agreement of sale is used almost everyday. Key provisions therein include parties, preamble, description of the transaction, asset being sold, purchase price, payment terms, currency of the agreement, delivery or transfer, breach, dispute resolution mechanisms and termination.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), ACCA (Business Valuations) MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, commercial arbitrator, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He was recently appointed to sit on the Council of Estate Administrators in Zimbabwe. He writes in his personal capacity. He can be contacted on +263 772 246 900 or ghofisi@hofisilaw.com or gohofisi@gmail.com
