What is Rouwkoop?

A few questions first:

1. What is a Rouwkoop clause in terms of property agreement?
2. What is the purpose of Rouwkoop?
3. How does it affect property transactions and how is it used in practice?

This article will endeavor to help you better understand the topic and hopefully improve your understanding of it.

An agreement of sale of immovable property sometimes contains a Rouwkoop clause. Rouwkoop is an amount payable by a party who wishes to withdraw from the agreement of sale after signature thereof. 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 preferable if the amount can be agreed upon upfront. This clause gives one party a legal way out without the other party losing out on some money in the transaction.

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 amount must be pre-approved and the request to withdraw must be made in writing.

It is very important to distinguish the Rouwkoop clause 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. 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 the property transaction.

This refers to the penalty clause and is totally wrong.  Legal action in this instance can be taken by the aggrieved party to remedy the matter and claim 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.

It is extremely important to know the difference between Rouwkoop and the penalty clause in property transactions, without knowing the difference, you cannot properly apply the clause if and when needed. You must not make the mistake to go the court over the matter if the Rouwkoop clause applies. This can in turn open you up to litigation. Thus, the Rouwkoop clause is very important, but rarely used in modern day property agreements. However, it is always better to understand the law more clearly and know how to apply these concepts in order to avoid going through long and expensive legal battles.

At Fuchs Roux Inc, we have a multi-professional and multi-disciplinary team ready to assist you will all your above needs and questions.

Reach out to us today for more legal or property advice on info@frlaw.co.za

FUCHS ROUX INCORPORATED

Brenton Viljoen