OTP vs Sale Agreement vs Deed of Sale
What is the correct term when buying commercial property?
When purchasing commercial property, the terms Offer to Purchase, Sale Agreement and Deed of Sale are often used interchangeably. They can describe different stages or labels in the same transaction, so the important issue is not only the heading on the document but what the document actually does once it has been signed.
1. Offer to Purchase (OTP)
An Offer to Purchase is initially the purchaser's written offer to buy the property on specified terms. Until the seller accepts it, it remains an offer.
Once the seller accepts and signs the OTP without making material changes, it will generally become the binding agreement of sale, subject to any suspensive conditions contained in the document. If the seller changes a material term, that would usually amount to a counter-offer rather than an acceptance.
2. Sale Agreement / Agreement of Sale
This is the clearest practical description of the binding contract between purchaser and seller. In larger commercial-property transactions, the parties may proceed directly to a detailed agreement prepared or reviewed by their attorneys.
For a formal commercial transaction, "Agreement of Sale of Immovable Property" is often a particularly clear heading because it identifies both the nature of the contract and the asset being sold.
3. Deed of Sale
"Deed of Sale" is also commonly used to describe the written sale agreement. South African legislation dealing with the sale of land uses the broader concept of a written and signed deed of alienation.
A Deed of Sale is therefore not necessarily a separate document that must be signed after an accepted OTP. An accepted OTP may already constitute the parties' binding Agreement of Sale or Deed of Sale.
Do not confuse the Deed of Sale with the Title Deed
The Sale Agreement records the contractual terms agreed between the purchaser and seller. The Title Deed is the registered document evidencing ownership of the property after transfer has been registered in the Deeds Office.
The practical answer
- Before acceptance: Offer to Purchase.
- After valid acceptance: Agreement of Sale, Sale Agreement or Deed of Sale.
- For a formal commercial property transaction: Agreement of Sale of Immovable Property is probably the clearest terminology.
Why the wording matters more than the heading
The heading of the document is less important than its actual wording, the authority of the signatories, the agreed terms and compliance with the legal requirements applicable to the sale of immovable property.
An OTP should therefore never be signed on the assumption that it is merely an expression of interest and that a "proper agreement" will automatically be signed later. Once accepted, it may already be the proper - and binding - agreement.
Practical takeaway: treat an OTP as a potentially binding sale agreement from the outset. Commercial property transactions should be reviewed by the parties' attorneys before signature.
This article provides general commercial-property information and is not legal advice. Transaction documents should be reviewed by the parties' attorneys before signature.