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Trust Maanda
Post Correspondent
Parties to a contract of sale of land have a right to agree on what happens when one party is in breach of the terms of the contract.
They can agree on remedies available to the innocent party.
The parties have freedom to contract.
No matter how onerous some of the terms of the contract may be, the courts hold that the parties’ agreement is sacrosanct and will enforce it.
While courts enforce terms of the contract however onerous, the law has made certain inroads into the parties’ freedom to contract.
One of the Acts of Parliament which affects the parties’ freedom to contract is the Contractual Penalties Act [Chapter 8:04] (the Act).
The Act restricts the seller’s right to terminate an instalment sale of land where there is breach and the penalties that can be visited on the purchaser.
Section 2 of the Act defines instalment sale of land as a contract for the sale of land whereby payment is required to be made:- “a) in three or more instalments b) by way of a deposit and two or more instalments and c) ownership of the land is not transferred until payment is completed.”
An instalment sale, therefore, is basically a sale of land where there is an agreement that payment of the purchase price be made in three or more instalments where ownership will pass after the payment is completed.
Where a seller in an instalment sale wishes to cancel the sale in the event of a breach by the purchaser, he or she should follow certain formalities, which if he or she does not follow, the cancellation will be invalid.
Section 8 of the Act provides as follows:
“8 Restriction of sellers’ rights
(1) No seller under an instalment sale of land may, on account of any breach of contract by the purchaser —
(a) enforce a penalty stipulation or a provision for the accelerated payment of the purchase price; or
(b) terminate the contract; or
(c) institute any proceedings for damages;
unless he has given notice in terms of subsection (2) and the period of the notice has expired without the breach being remedied, rectified or discontinued, as the case may be.
This means that where a seller wishes to cancel or enforce a penalty clause in the instalment sale agreement, he or she should first given written notice to the other party to rectify the breach.
The period of notice should be thirty days or more if the contract provides for more days than thirty days.
The notice should be in writing and must advise the purchaser of the breach, clearly giving the purchaser notice to rectify or desist from continuing with the breach.
That notice should be delivered or sent by registered post to the purchaser.
A cancellation of an instalment sale, without the giving of a written notice as stipulated by law, is invalid.
Parties may not agree to a notice period of less than thirty days.
The notice should be posted by registered post to the address chosen by the purchaser for the delivery of correspondence or legal documents relating to the instalment sale of land concerned or, in the absence thereof, to the purchaser’s usual or last known place of residence or business.
Where a party to a contract has chosen an address of service where service of documents or correspondence on matters relating to the contract should be effected and has selected the registered mail as the preferred mode of service of documents or correspondence, compliance by the other party with the procedure prescribed under the law of service by registered post would constitute effective service of any such document or correspondence upon delivery of the registered mail slip at the chosen address of service.
Section 4 of the Act allows the court to act on a penalty stipulation if it appears to it that it is out of proportion.
If a penalty stipulation is out of proportion to any prejudice suffered by the innocent party, the court may not enforce it even though the parties may have agreed to it. In that case the court may:-
reduce the penalty to such extent as the court considers equitable under the circumstances; and
grant such other relief as the court considers will be fair and just to the parties.
The Act was made in order to protect the purchasers who may fall prey to sellers who because of their stronger bargaining power may impose oppressive terms on purchasers.
Trust Maanda is a legal practitioner and a partner at Maunga Maanda And Associates. He writes in his personal capacity. He can be reached at +263 772432646
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