How do suspensive conditions affect the sale of a property?
Buying or selling a property is one of the biggest financial investments most of us make. It is an exciting and emotional rollercoaster with many legal terms that can cause confusion for sellers and buyers. Before signing any offer to purchase it is important that the implications of all the conditions contained in that agreement are fully understood.
Suspensive conditions in the property market are clauses included in a sale agreement that state that the sale is subject to certain events happening before it is finalized. These conditions are typically included to protect both the buyer and the seller, and they can be anything from obtaining bond approval to the sale of the buyer’s current property.
Common examples of suspensive conditions in the property market include:
- Bond approval: This is the most common suspensive condition, and it is used to ensure that the buyer can actually afford to purchase the property. The buyer will typically have a certain amount of time, such as 30 or 60 days, to obtain bond approval from a financial institution. If the buyer is unable to obtain bond approval by the deadline, the sale agreement will lapse.
- Sale of buyer’s current property: This suspensive condition is often used by buyers who need to sell their current property in order to finance the purchase of their new property. The buyer will typically have a certain amount of time, such as 90 or 120 days, to sell their current property. If the buyer is unable to sell their current property by the deadline, the sale agreement will lapse.
- Occupation date: This suspensive condition is used to specify the date on which the buyer will be able to move into the property. This date is typically negotiated between the buyer and the seller, and it can be affected by factors such as the seller’s need to vacate the property and the buyer’s need to obtain bond approval.
- Approval from a third party: This suspensive condition can be used for a variety of purposes, such as obtaining approval from a spouse or co-buyer, or obtaining approval from a financial institution for a special type of mortgage. The specific terms of the condition will vary depending on the individual situation.
Suspensive conditions can be a complex topic, and it is important to have a clear understanding of the implications before signing a sale agreement. It is always advisable to consult with a qualified real estate agent or attorney to discuss any questions or concerns that you may have.
Monarch Property Consultants team are available to assist you in understanding the suspension conditions of your sale
A few of the terms used will be dealt with below:
1. Deed of Sale Agreement
2. Suspensive Condition
3. Resolutive Time Clauses
1. Deed of Sale Agreement
This is a legally binding document that specifies every agreement that has been made between the purchaser and the seller of the property. It has to be signed by designated witnesses. The purchaser is the person buying the property and there are different types such as customer agents or foreign purchasers.
2. Suspensive Condition
A suspensive condition (as outlined above) is a condition which suspends the rights and obligations (or the coming into operation of the entire agreement) until a certain future event occurs. Upon the occurrence of the event, the suspended part of the agreement (or the entire agreement) is brought to life.
So what does this legal definition mean to the purchaser and the buyer? What ‘event’ could cause a property deal to be suspended?
Suspensive Condition Examples : events that could lead to problems in a deed of sale agreement are:
- the buyer needs to obtain the funds in the form of a loan.
- the buyer is still in the process of selling his or her property.
These two common factors are deemed suspensive conditions because:
- the condition requiring the purchaser to obtain approval of a loan from a financial institution will involve a specific period of time. If this ‘future event’ is not fulfilled the agreement lapses.
- the condition that provides the buyer first needs to sell an existing property means that the agreement is dependent on the buyer meeting that obligation.
Suspensive conditions protect both the buyer and the seller.
The buyer is protected in the event of not obtaining approval for a loan or not concluding a sale of his or her property. So if the future event does not occur he or she is freed of all obligations in the sale agreement.
The seller is also protected as if the buyer has not met the suspensive condition in the sale agreement the seller is freed to put his or her property back on the market.
Can a suspensive condition be waived?
It is good to know that a suspensive condition can be waived by either party prior to the expiry date. Using one example given earlier – if a buyer manages to obtain the required funds and is therefore not in need of a loan the suspensive condition could be waived and the agreement will come into force.
In the event of the suspensive condition being complied with within the time period stipulated, the agreement will be deemed to have been in force from the date of conclusion thereof.
3. Resolutive time clauses
A resolutive time clause limits the period of time that the obligations outlined in a Deed of Sale Agreement have an effect and can be enforced. These clauses can be a specific date or a fixed period of time. A resolutive clause is a condition which if fulfilled will terminate the agreement. The Sale Agreement will remain in full force unless the stipulated resolutive event happens.
So what are the main differences between a suspensive and a resolutive condition?
Suspensive Condition vs Resolutive Condition
With suspensive conditions, the rights and obligations of the agreement only become binding when the suspensive condition has been met. However with resolutive clause the sales agreement is immediately binding with all rights and obligations in force from the date of the contract. These rights and obligations cannot be suspended.
It is so important to conclude a sales agreement with the help of an agency to ensure you have the right legal conditions.
Connect with our Monarch Property Consultants team for the right conveyancing advice.
Suspensive ConditionKey Points
- Delays the formation of the contract until the condition is fulfilled.
- The contract does not come into effect until the condition is fulfilled.
- Common examples include obtaining bond approval, sale of buyer’s current property, and occupation date.
Resolutive conditionKey Points
- Terminates the contract upon fulfillment of the condition.
- The contract is immediately binding, but it can be terminated if the condition is fulfilled.
- Common examples include failure to obtain bond approval, failure to sell buyer’s current property by a certain date, breach of contract, and death of either party.