A conditional contract is a contract for the sale and purchase of property in which completion of the sale and purchase depends on certain conditions being met. These conditions are often referred to as ‘conditions precedent’.
Key differences from unconditional contracts
Unlike unconditional contracts, conditional contracts provide a framework to address uncertainties before the purchaser is obliged to complete its purchase while also providing the Seller with comfort that a sale will occur if the conditions are met. Once the conditions are met, the contract will become unconditional (the unconditional date), and the parties are obliged to complete the sale and purchase at the price and on the other terms provided by the contract.
A conditional contract therefore must address all other relevant terms of the proposed transaction, not just the conditions.
Sellers often prefer to structure a sale by use of a conditional contract rather than by way of an option agreement which does not usually include an obligation on the purchaser to proceed with its purchase.
What happens if the conditions are not met?
If the conditions of a conditional contract are not satisfied (or waived) the parties are typically entitled to terminate the agreement without penalties.
The benefit of greater certainty given by a conditional contract should be balanced against the additional complexity, time and cost which can arise from the preparation and negotiation of a conditional contract.
The risk of additional costs and delays is often directly proportionate to the number and complexity of the conditions to be included.
The parties should give careful consideration when determining whether a conditional contract should be used and seek specialist legal advice at an early stage. It can often be useful for the parties solicitors to review and comment on the proposed heads of terms before they are issued. This often helps to identify key issues early in the transaction and assists with efficient drafting and negotiation of the conditional contract.
For more details on key considerations of conditional contracts, please refer to our more in-depth summary.
How we help
Our Development & House Building Team specialises in acting for developers, land traders, landowners and funders in connection with the acquisition, disposal and funding of development sites across the country as well as advising on construction and planning arrangements and plot sales.
Contact us on [email protected] to learn how the team can assist you throughout the development process.
