Suspensive conditions.  (“This agreement is not binding until….”)

  • The agreement is not final if it is subject to “suspensive conditions”, sometimes called “conditions precedent”.
  • These are your “get-out-of-jail-free” card.   This is a bit complicated, but worth the read because they can be a handy device in a contract.
  • They allow you to do the deal now and do your homework later.  They can be made to protect the buyer or the seller.
  • They avoid the deal being lost while details are being ironed out.

The “suspensive conditions” or “conditions precedent” have the effect that the agreement, or at least parts of it, don’t apply or bind the parties until something else happens.

Suspensive conditions clearly state that the whole agreement or at least parts of it, are not final until something happens.

This is usually:

  • the sale of another property by the buyer;
  • the purchase of another property by the seller;
  • the raising of mortgage finance by the buyer (“the buyer “getting a bond”);
  • a “due diligence investigation” of the property by the buyer.  A separate section deals with this important clause.  For example:

“​​This agreement is not binding on the parties until the buyer confirms in writing by no later than ___(date)  that the buyer is satisfied with a due diligence investigation carried out on all aspects of the property.   This condition is reserved for the benefit of the buyer only who may waive it before the due date for fulfilment.”

If a suspensive condition is included to benefit just one party, then that party can “waive” the benefit of the condition, and say they no longer need its protection.

For example, the agreement is subject to the buyer receiving approval from a bank of a mortgage loan (“a bond”) of R5m but the buyer receives approval of a loan of only R4m.   If the buyer decides to go ahead anyway and raise the rest in cash, the buyer can waive the benefit of this condition.  (“I confirm that the loan of R4m is enough and I will pay the balance in cash.”) 

To make sure this can be done by the buyer alone without the permission of the seller, the buyer must record in the bond clause that the clause is “reserved for the benefit of the buyer only.”

The language of these clauses must be prepared with precision so that it is very clear

  • by what date and time the condition must be met;
  • how it is to be met (in writing is a good idea), and this written notice must have been properly delivered to the other party by this date and time;
  • in whose favour the condition is reserved.

Check that the agreement records that if the condition is not met, the agreement does not exist.

This must be made clear so that it is different from the clauses that simply create an obligation on the part of the buyer or the seller.

Often a seller believes that if the the buyer does not pay the deposit on time, the deal falls  through.   Unless payment of the deposit on time is a suspensive condition, this is not the case.  It just means that the buyer is in breach of his obligations under the agreement.  See the discussion under the breach clause.

Make sure that you understand which clauses from the time of signature, and which apply only when all the suspensive conditions are met.   It is best if the agreement provides this clearly.

For example, you may still have to do certain things while the suspensive conditions remain unfulfilled, like pay a deposit and supply your personal information to the conveyancer.  If you want to avoid this, make sure that the agreement states this clearly.