Conditional v Unconditional Contract

.Payment of deposit evidences the buyer’s desire to proceed with the sale. Generally, the seller requires the buyer to pay an initial deposit soon after the contract is signed. The deposit is usually held in trust by a solicitor or real estate agent until completion of payment and transfer to the seller.

Typical pre-conditions to a sale include obtaining: building and pest inspections, finance approval, Pool Safety Inspection certificate, pre-settlement notice, etc. For instance, if the contract is subject to satisfactory building and pest inspection reports, the buyer must take all reasonable steps to obtain the reports. The buyer must seek a building inspector.

Any major adverse issue with respect to the property to which the buyer is not satisfied with may be a ground to terminate the contract without penalty.

If any of the pre-condition is not satisfied, either of the parties may terminate the contract without incurring penalties.
Otherwise, once the seller receives the full deposit and other conditions of the contract have been met, the contract becomes unconditional. An unconditional contract of sale is legally binding between the parties.

After becoming unconditional, non-performance of obligation of either party renders him in default. If for instance the buyer decides not to proceed with the sale, he becomes a party in default. The seller who is the non-defaulting party has every right to forfeit the deposit and may even claim damages against the defaulting buyer. The seller may also recover as a liquidated debt, any part of the deposit which is not paid when required.

However, an instance when most sellers allow buyers to terminate the contract without incurring penalty is when the buyer himself dies. This is a termination for a valid reason to which the defaulting party is not held in breach. Thus, in case of death, the seller is NOT entitled to forfeit the deposit and the buyer is entitled to its return.

The date the contract becomes unconditional is significant also for other reasons. The stamp duty is payable within one month of the Contract Date or the date on which the Contract becomes unconditional (whichever is later). Failure by the buyer to pay stamp duty on time renders him liable to penalties.

The cooling off period usually starts one business day from contract date or the date the contract becomes unconditional. At any time within the cooling off period of 5 business days, the buyer is still entitled to terminate the contract subject however to a penalty.

Also, once the contract becomes unconditional, the real estate agent is still entitled to his commission irrespective of what happens after that date. This is on the basis of the agent’s role being limited to securing for the seller an unconditional contract. The commission is usually deducted from the buyer’s deposit to be forfeited, if the buyer defaults after the contract becomes unconditional. Otherwise, his commission is still deductible from the full deposit to be paid to the seller.


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