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The Rouwkoop Clause

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Published Date: July 6, 2020

A typical agreement of sale of immovable property contains a rouwkoop clause. Rouwkoop is an amount payable by a party who wishes to withdraw from the agreement of sale. The parties would have to reach consensus on a fair and reasonable amount that would constitute rouwkoop. Although it is not practically possible in most cases, it would be preferably if the amount can be agreed upon upfront. There is always much debate on the enforcement and application of the rouwkoop provisions in the agreements of sale.

In recent times the rouwkoop clause has been extended to forfeiture of deposits already paid by the purchaser as a result of the purchaser’s breach of contract in respect of a property transaction. As discussed above, for the rouwkoop clause to be applicable, one of the parties must request to withdraw from the transaction in which event the agreed amount must be paid by the party to be discharged from the transaction. The rouwkoop clause is not depended on breach of contract by either party and therefore the forfeiture of any deposit amount paid by the purchaser as rouwkoop due to breach of contract is a misapplication of this concept as this amounts to a penalty stipulation which will be subject to the Conventional Penalties Act 15 of 1962.

The rouwkoop clause must be distinguished from the penalty clause which entails that a party (usually the purchaser) to a property transaction who is in default of obligations imposed upon him shall forfeit any amount paid in respect of that transaction as damages. It is important to note that in terms of the Conventional Penalties Act and case law, the forfeiture of a deposit as a penalty, or any amount already paid in respect of a transaction cannot be arbitrary and should represent the damages actually suffered by the seller.

Considering the above, parties to a property transaction need to fully understand the full extent and application of the rouwkoop clause in respect of their property transactions to avoid unnecessary legal disputes.

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