A condition precedent must be fulfilled before a contract is valid, while a condition subsequent can end a contract if a specific event happens. This article explains these terms with examples to help you understand the use of these clauses in real estate transactions.
What is a Condition in Real Estate Transactions
In real estate, a condition is a clause in a purchase agreement that must be fulfilled for the transaction to proceed. Conditions protect buyers and sellers by ensuring that specific requirements are met before the deal becomes firm. If a condition is not satisfied within the agreed timeframe, the contract may be terminated without penalties.
Common conditions in real estate transactions include financing, home inspection, and status certificate review (for condos). A financing condition allows the buyer time to secure mortgage approval, while an inspection condition ensures the property is free from significant defects. In condominium purchases, a status certificate condition gives buyers the opportunity to review the condo corporation’s financial health and rules before committing to the purchase.
There are two main types of conditions in a purchase agreement:
Condition Precedent
A condition precedent is a requirement that must be fulfilled before the transaction can proceed. If the condition is not met within the specified timeframe, the agreement becomes null and void. This type of condition protects buyers and sellers by ensuring certain obligations are satisfied before closing.
Common Examples of Condition Precedent in Real Estate:
- Financing Condition
- “This Offer is conditional upon the Buyer obtaining mortgage financing on terms satisfactory to the Buyer, in their sole and absolute discretion, within five (5) business days from the acceptance of this Offer. If this condition is not fulfilled or waived within the stated period, this Agreement shall become null and void, and all deposits shall be returned to the Buyer in full without deduction.”
- Home Inspection Condition
- “This Offer is conditional upon the Buyer obtaining, at the Buyer’s own expense, a home inspection report by a qualified home inspector within five (5) business days of acceptance of this Offer. If the inspection reveals any material defects that are unacceptable to the Buyer, the Buyer shall have the right to terminate this Agreement by providing written notice to the Seller within the condition period, and the deposit shall be returned in full.”
- Status Certificate Review Condition (for Condominiums)
- “This Offer is conditional upon the Buyer’s lawyer reviewing the Status Certificate and accompanying documents provided by the Condominium Corporation within ten (10) business days of receipt. If the Buyer’s lawyer finds the financial or legal status of the Condominium Corporation unsatisfactory, the Buyer shall have the right to terminate this Agreement by providing written notice to the Seller before the expiry of the condition period, and all deposits shall be returned in full.”
- Sale of Buyer’s Existing Property Condition
- “This Offer is conditional upon the Buyer entering into a firm Agreement of Purchase and Sale for their existing property at [Buyer’s Property Address] within fifteen (15) days of acceptance of this Offer. If the Buyer does not secure a firm sale of their property within the stated period, this Agreement shall become null and void, and all deposits shall be returned to the Buyer in full.”
Condition Subsequent
A condition subsequent is one that terminates or alters an already binding agreement if a specified event occurs (or fails to occur). While this concept exists in general contract law, it is rarely used in real estate agreements because most real estate conditions are structured as precedent to protect the parties before the contract becomes firm.
However, some situations could involve condition subsequent-like provisions, such as:
- Seller’s Right to Cancel – If the seller is unable to secure a replacement home by a certain date, they may be allowed to terminate the contract.
- Buyer’s Obligation to Sell Their Existing Property – A contract may initially proceed, but if the buyer does not sell their current home within a set period, the buyer may have the right to rescind the agreement.
In most real estate transactions, conditions are written as precedent rather than subsequent to avoid uncertainty after an agreement is executed.
Notice of Fulfillment and Waiver in Real Estate
A Notice of Fulfillment (NOF) is a formal declaration by a party stating that a condition precedent in the Agreement of Purchase and Sale has been satisfied. This notice is used when a condition, such as financing approval or a home inspection, has been met within the agreed-upon timeframe. Once the Notice of Fulfillment is signed and delivered to the other party, the condition is considered satisfied, and the agreement moves forward as a firm deal. If a party fails to provide the Notice of Fulfillment within the condition period, the agreement may become void, and the deposit is usually returned to the buyer.
A Waiver, on the other hand, is used when a party voluntarily chooses to give up a condition, allowing the transaction to proceed even if the condition has not been formally satisfied. For example, if a buyer cannot secure mortgage financing but still wishes to proceed with the purchase, they can sign a Waiver of Condition to remove the financing condition from the agreement. However, waiving a condition carries risks, as it means the party giving up the condition will no longer have legal grounds to cancel the agreement based on that specific issue.
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Summary
In summary, conditions precedent require specific actions to be fulfilled before a contract can proceed, providing a safety net for buyers. Conditions subsequent, though less common, ensure that contracts remain valid unless a specified event occurs. If you have any questions, contact a real estate lawyer.
The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.
