How about that ‘suspensive condition’?
10 September 2021
“I’ve bought and sold a few houses in my time and have always seen provision being made for a suspensive condition such as that the agreement is subject to a home loan being obtained. I’ve got the gist of what it means, but have never felt like I can explain it to someone else. Can you break it down for me?”
It is true that a suspensive condition or condition precedent (same thing) can appear quite daunting and legalistic to understand. It is also true that it appears quite regularly in contracts and can have important consequences if not properly understood or managed by the parties.
A suspensive condition can be described as a condition that suspends the full operation of the contract and makes it subject to the occurrence of a future event. Importantly though, a contract which is subject to a suspensive condition is valid from the time it was concluded but is ‘suspended’ until such time as the condition has been fulfilled. Once the condition has been met as required by the contract, the contract is no longer ‘suspended’ but is of full force and effect.
But what happens then when the condition is not fulfilled as required by the contract? Well, in this case, our courts have determined that non-fulfilment of a suspensive condition renders the agreement void from the start and of no legal effect. This means that our courts effectively view the contract as never having existed and the parties must be restored to that position i.e. as they were before the contract was concluded.
As you can see from the above, a suspensive condition can have serious consequences and should not be taken lightly. Often the suspensive condition provisions also contain very specific requirements which if not met in full could lead to a disastrous consequence of an agreement being void from the start even though both parties did not have such an intention! So, mind the suspensive condition when you encounter it again and afford it the respect it deserves.