Online Reporter
Trust Maanda
Legal Position
IN most sale agreements, the parties include what is a called a rouwkoop clause.
Rouwkoop originates from common law and derived from Dutch, meaning “regret” and “purchase,”.
This clause allows a party to withdraw from an agreement by paying an agreed-upon sum.
This payment essentially buys their way out of the contract, meaning their withdrawal does not constitute a breach.
Frequently, if a buyer withdraws, the seller is entitled to retain the deposit (or a portion) as rouwkoop as forfeiture by the purchaser.
Rouwkoop clause is a common law provision in agreements, particularly property sales, that allows a party to withdraw from a contract by paying a pre-agreed fee to the seller which is often forfeiting a deposit.
It is not a penalty for breach, but rather a “purchase of freedom” from the contract.
That clause would normally provide that if the purchaser is in default of the agreement and refuse to rectify the default within a number of days after acceptance of this written notice, the seller will be entitled, without prejudice to any other rights that he or she may have such as liquidated damages, cancel the agreement and to keep any other amounts payable, as rouwkoop or by means of any pending decision by a court of the real damages suffered or demand specific performance of the conditions of the contract with or without a claim for damages.
What a rouwkoop clause does is that the purchaser forfeits some money he would have paid as deposit If he resiles from the contract.
Rouwkoop is what the seller retains from the deposit paid by the purchaser, if the purchaser pulls out of the contract. It is not a penalty clause, although it has the effect of one. A penalty clause applies when a contract is cancelled due to a breach (e.g., non-payment), whereas rouwkoop is for a “change of heart”.
It is the money that the purchaser pays to buy his freedom from the contract.
It acts as a pre-determined, agreed-upon amount that serves as compensation to the other party if one party decides to cancel the contract voluntarily.
When a party exercises a valid rouwkoop clause, they are acting in accordance with the contract, not breaching it.
Though harsh, rouwkoop clauses are enforceable, so long as they are not excessive.
The contractual Penalties Act governs rouwkoop clauses if they are excessive and can be applied to reduce the rouwkoop sum to the extent that it is equitable to do so, taking into account the parties’ rightful interests.
The general rule is that the failure of the agreement obliges parties to restore each other to the position they were in immediately before the conclusion of the agreement.
Thus, a purchaser who has paid a portion of a purchase price as a deposit is generally entitled to be repaid that sum. But the duty to restore is not immutable. It and may be excluded by agreement for example in the case of a rouwkoop clause or other penalty stipulation.
There are exceptions to the applicability of the rouwkoop clause. If the sale agreement is void from the outset, then so is the rouwkoop clause, and the buyer is entitled to the return of all the money he paid under the agreement.
If the sale agreement was valid, and cancelled on breach, then the extent of seller’s entitlement to the return of the money depends on the application of the rouwkoop clause. Where it applies, the money paid as a deposit or part thereof will be forfeited.
The rouwkoop clause is inserted to discourage a seller from changing his mind and walking out of an agreement.
It discourages those that waste time by not seriously entering into contracts. If a buyer knows that he would lose his deposit, he will make sure to comply with the rest of the terms of the agreement.
When you are the seller in an agreement, you can insist on the insertion of the rouwkoop clause so that the purchaser feels obligated to honour the terms of the contract.
As a buyer, make sure you understand the import and implication of this clause. You will forfeit your deposit or portion thereof if you decide to pull out of an agreement, where this clause is a term of the agreement.
TRUST MAANDA is a legal practitioner and a partner at Maunga Maanda And Associates. He writes in his personal capacity. He can be contacted on +263772432646
