Does a verbal option agreement hold water?
"I've had my eye on a farm and approached the farmer about two years ago to sell. His asking price was more than I could afford at the time, but he was prepared to grant me an option for a period of five years to purchase the property on terms which we orally agreed to. I raised the capital and attempted to exercise the option by the delivery of a signed deed of sale, but the farmer did not want to accept and told me our oral agreement was not valid. Is he correct?"
Section 2(1) of the Alienation of Land Act 68 of 1981 ("Act") stipulates that no sale of land (such as a farm) shall be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority. This requires that there must be a written agreement of sale of immovable property to be sold.
The question now though is, whether the requirement for a written contract also includes an option to purchase such property. The nature of an option to purchase is such that the seller (the grantor of the option) is required to sell if and when the option holder (the purchaser) decides to exercise his right to purchase in terms of the option and complies with any option requirements set between the parties. Such an option then prevents the grantor from offering the property for sale to another party until the expiry of the option period.
Our courts recently had to consider whether an option to purchase land had to be in writing for it to be enforceable. An option to purchase has two parts, namely an offer to purchase (the intended agreement of sale) and an agreement to keep the offer open (normally for a certain period). The undertaking to keep the offer open (the option agreement) is an agreement that leads to the conclusion of the offer to purchase. The affording of an option does not amount to a sale of property as envisaged in the Act and is therefore not of itself required to be in writing. However, the offer which the grantor has undertaken to keep open must be a firm offer and which will result in a binding contract if it is accepted. This means that an offer resulting in the sale of land can only bring about a binding agreement upon acceptance if it is in writing. This means that an option cannot be valid if it is not placed in writing where the property to which it relates, is land as defined in the Act, such as your farm.
In your case, it appears 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 farmland, therefore cannot be validly exercised and you would not be able to hold the farmer to the option agreement.
Author Kotzé Low Swanepoel Attorneys