PROPERTY CONTRACT SUSPENSIVE CONDITIONS



There are three common terms used to describe these conditions  and all hold the same value within a contract :
  • Suspensive
  • Contingent
  • Subject To
If your offer says "this offer is contingent upon (or subject to) a certain event," you're saying that you will only go through with the purchase if that event occurs. Almost every sale contract will have at least one “Subject to” clause.
 
Below are the common contingencies contained in a purchase offer:
 
Buyer Finance Contingencies
Green property line

The buyer obtaining specific financing from a lending institution: If the loan can't be found, the buyer won't be bound by the contract. The sale is therefore subject to the buyer getting a bond.
 
This clause is quite common as almost every buyer will have to get a bond in order to purchase. A good way to make this work for both buyer and seller, is for the buyer to have a Bond Originator get them pre-qualified prior to making offers.
 
Inspection Contingencies
Green property line

A purchase offer can include a contingency clause that allows the buyer to hire a home inspector or professional expert to inspect the property. If there is a significant defect in the property, the buyer can cancel the contract without being in breach.
 
The time period for inspection contingencies is negotiable but a common period the buyers have is about a week in which to perform the inspection and allow cancellation the contract if the structural inspection reveals a serious and consequential defect.
 
The positive side to such contingencies is that the inspection usually addresses - and overcomes any misgivings the buyer might have, and confirms their decision to move ahead with the purchase.

We recommend that such inspection contingencies are specific realting to serious defects such as roof leaks, foundational problems etc. Otherwise the buyer could cancel for something as simple as a loose gutter.
 
Prior Sale Contingencies
Green property line

The buyer successfully selling their own home first and by a certain date. ALWAYS make sure that there is a cut off date that is reasonable.
 
For obvious reasons, most sellers are not overly happy about this type of clause, as the property might not get sold and then they have to begin their marketing all over again.

As a seller, they should consider the market value of the home being sold vs the asking price – make sure there is a good chance of it actually being sold. Also important is what agent is doing the selling - are they reputable? Ask your agent to give you their advice.

 
Most sellers will also ask for an “Escape Clause” to be added – In the event of a better offer being received in the interim.
 
Repair Contingencies
Green property line

These are most often repairs that have to be undertaken by the seller by a certain date – normally prior to lodgement. The clause would then read that the sale is subject to repairs x, y and z being undertaken by the seller by such and such a date.
 
Sellers be warned – If you agree to repairs, do them and do them satisfactorily. If you do not, the sale will fall through and all those involved, banks, attorneys and agents will come knocking at your door for compensation of costs incurred.

Buyers be warned - We do not recommend that minor repair issues are made suspensive conditions. You could lose the property simly because the seller did not fix a small window pane. It is better to make these resolutive conditions (see below)

Suspensive vs Resolutive Clauses
Green property line

As we read above, suspensive conditions, if not met, cause the entire agreement to become null and void.

With Resolutive conditions on the other hand, if they are not met, the sale does not become null and void and the parties may take legal action to ensure compliance.

Let us again use the example of repairs :
The Seller undertakes to repaint the lounge prior to registration date but does not do so. If this was a suspensive condition, the sale would now be null and void. As a resolutive condition, however the sale still proceeds and the conveyancing attorneys will withold sufficient funds to cover the repainting.The latter is obviously the more practical solution.

In Summary
Green property line

Briefly, a suspensive condition, "suspends" the sale until the condition is met. e.g. If the buyer is unable to obtain a bond, the contract is null and void and no party has legal recourse upon the other.

If a resolutive condition is not met, the other party may sue for damages and or cancel the agreement. e.g. The seller of the property refuses to supply copies of ID books as required by FICA. The conveyancers will then force them legally to comply and at worst case scenario, the deal falls apart.

The Buyer may then sue for any damages incurred including rentals paid while waiting for registration etc. The agent may also sue for commissions lost due to non compliance.


Back the Legal Advice Centre for all your legal answers
Read more on Why to Use Property Network
CDPE Qualification - What does it mean

Subscribe to Newsletter property network
property blog port elizabeth south africa
property network on facebook

BE A REAL FRIEND
SHARE THIS WITH SOMEONE



property advice centre
property network feedback page
shirene keyter estate agent property network
Property Network Relocation and Moving