Show your intention to buy property with a letter of offer

I have identified a house to buy from a real estate company. The company has sent me an email stating that I will have to sign a document called letter of offer as a starting point. I do not have a lawyer yet but would want to know what the document is and whether appending my signature would bind me to the transaction. Is it different from a sale agreement?

Matilda, Nairobi.

A letter of offer is a document that details the terms and conditions of the transaction. It is drafted before any payments are made and signed by both the buyer and seller.

On the other side, a sale agreement stipulates the mutual consent of both parties and signed by them and their lawyers as witnesses.

It shows the mode of payment, period of transaction, details terms and conditions under which the sale is being made.

A letter of offer expresses intentions of the buyer to purchase property but is not a legally-binding contract.

The intentions are spelt out clearly and simply for the seller to know exactly how the buyer wants to purchase the house or plot, and under what terms.

Unlike sale agreements that are littered with legal jargon that intimidate, a letter of offer is an easy read with five basic elements: the name and address of the buyer and his or her lawyer, address and description of the property.

An offer letter mainly includes the purchase price, down payment, terms and conditions.

There should also be a clause that stipulates when the transaction should be completed and another that makes the letter a non-binding document.

Other elements are the due diligence time - the period which the lawyer of the buyer should take to perform official searches on the property. (A search is an investigation of title of the property to ascertain the registered owner. No deposits on the home or land on sale should be paid before the seller is officially confirmed as the registered owner.)

It is the responsibility of the lawyer representing the buyer to conduct the search to cushion the client from potential fraud.

Official searches establish the land reference number, registered owner, registration particulars, encumbrances and covenants.

It also shows whether the property is freehold or leasehold to determine whether land rent should be paid or not.

Starting off property transactions with a letter of offer is also to allow for easy negotiations. The lawyer for the seller can respond with alternate terms or a counter-offer without re-writing lengthy legal pages synonymous with lawyer.

A sale agreement can be drafted after the buyer has inspected the property using professionals. There are instances whereby terms and conditions change, especially when some aspects of the property were not disclosed to the buyer.

For instance, a registered valuer may produce a report that either lowers or shoots up the property’s price.

A structural engineer may also say the house is in a worse condition than the buyer thinks. The buyer would eventually negotiate for a lower purchase price.

The buyer can also opt not to continue with the transaction before signing a sale agreement without any recourse or punishment for breach of agreement.

Even as a letter of offer is an important primary document, some buyers who want to buy property hurriedly instruct their lawyers to by-pass it.

But some of the buyers cannot be blamed as sellers often insist that they need the money urgently and would not undergo tedious legal processes.

- The writer is an advocate of the High Court.

hayodo@standardmedia.co.ke