More on Suspensive Conditions

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In one of my earlier articles, I dealt with suspensive conditions. In simple terms, a suspensive condition in a sale agreement is a condition that makes the sale dependent upon the occurrence of some future event. The two most common suspensive conditions which are encountered in contracts relating to the sale of land are the condition that the sale is subject to the purchaser obtaining a loan by a certain date, or that the sale is subject to the sale of the purchaser’s property by a certain date.

The date by which the condition must be fulfilled should always be inserted in the contract. In other words, the date by which the loan must be obtained, or the purchaser’s property sold must always be inserted. If the loan is not obtained or the purchaser’s property sold by the specified date, then the contract lapses and is not binding on the parties.

In practice, it quite often occurs that the purchaser does not obtain a loan or sell his or her property by the specified date, but the parties thereafter agree to extend the date. Quite often this agreement (to extend the date) is reached verbally. This creates considerable problems in practice, as such a verbal agreement to extend the date is not legally binding on either the seller or the purchaser.

If, for example, a sale is subject to the purchaser obtaining a loan by 31st March and the purchaser does not obtain the loan by that date, but the seller and purchaser thereafter agree verbally to extend the date to 15th April, and the purchaser obtains the loan by the extended date, the contract is nevertheless not binding on the parties. Neither the seller nor the purchaser can be forced to proceed with the sale, even though the purchaser has obtained the loan by the extended date. The sale lapsed when the loan was not obtained by 31st March and cannot be revived by the seller and the purchaser entering into a verbal agreement to extend the date by which the loan must be obtained.

The correct procedure in the example referred to above is for the seller and purchaser to enter into a written agreement which provides for the revival of the original agreement and the extension of the date by which the purchaser has to obtain the loan.Alternatively, the parties can enter into a completely new agreement that extends the date for the obtaining of the loan by the purchaser. Of course, such agreements (the revival agreement or the new agreement) must be signed by the parties. This procedure must be followed in all cases where a sale has lapsed due to the non-fulfilment of any suspensive condition and the parties wish to revive the sale and extend the date for the fulfilment of the suspensive condition.

If the parties elect to enter into an agreement to revive the initial sale (rather than enter into a completely new agreement), then care must be taken with regards to the drafting of such an agreement. I advise sellers, purchasers and estate agents to seek advice from an attorney under such circumstances.

(Disclaimer: This article is for information purposes only and do not constitute legal or other professional advice)