What is meant by a suspensive condition in a contract?
Most persons that have bought a property may have noticed a clause dealing with suspensive conditions in the contract of sale. Usually these conditions relate to deposits that need to be paid, financing that has to be procured and/or another property that needs to be sold before the sale can be confirmed. The interpretation appears straightforward enough – meet the requirements, then the contract is valid. If you don’t meet them, then the contract is invalid. But is it that straightforward? And what are the consequences of non-compliance?
A condition contained in a contract can in layman’s terms be described as a provision that defers the obligation(s) of a party in the contract to the occurrence of some future uncertain event. This is usually termed a ‘suspensive condition’ or a ‘condition precedent’.
Legally a suspensive condition can be described as a condition that suspends the operation or effect of one, or some, or all, of the obligations under a contract until the condition is fulfilled. If the condition is not fulfilled, then no contract comes into existence. Once the condition is fulfilled, the contract and the mutual rights of the parties relate back to, and are deemed to have been in force from, the date of the signature of the agreement and not the date of the fulfillment of the condition.
The Supreme Court of Appeal recently confirmed that where a suspensive condition is not fulfilled timeously, it lapses and the parties are not bound by it, even though one party has performed fully.
The most common appearance of suspensive conditions is in contracts involving the sale of immovable property such as a house, flat, plot or farm. The conditions that are generally encountered in the contract of sale is that the sale is subject to the purchaser obtaining a bond from a financial institution and/or that the sale is subject to the purchaser selling his existing property within a certain time frame.
It is important to bear in mind that suspensive conditions are usually inserted in a contract for the benefit of one of the parties to the contract. In the abovementioned scenario the suspensive conditions are included for the protection of the purchaser. Should the purchaser fail to obtain a bond and/or sell his existing property within the required time frame, the contract would not have any force or effect and the purchaser will not be bound to the terms and conditions of the contract. Non-fulfillment of a suspensive condition renders the contract void and should the parties still wish to continue with the sale, a new contract of sale may have to be concluded.
If a suspensive condition is included for the benefit of a particular party to a contract, the party for whose benefit the condition was included can waive such suspensive condition at any time prior to the lapsing of the time for the fulfillment of the suspensive condition. Having regard to the scenarios mentioned above, the purchaser may accordingly at any time before the lapsing of the period of the suspensive condition, inform the seller that he waives the suspensive condition and that the contract is no longer subject thereto. This will then make the contract unconditional and the purchaser and seller will be bound to the terms of the contract.
It is always prudent to tread carefully when entering into a contract that is subject to a suspensive condition. Be aware of the stipulated time frames for compliance, for whose benefit the conditions are inserted and the requirements to prove compliance.
If necessary, ensure you seek legal advice before you sign the contract and also obtain advice before you waive any conditions that have been inserted for your benefit.
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