What Is Conditional Exchange of Contracts?
Conditional exchange of contracts refers to the process of entering into a contract that becomes binding only if certain condition is fulfilled.3 min read
2. Drafting a Conditional Contract
3. What Is Acceptance?
4. Types of Acceptance
Conditional exchange of contracts refers to the process of entering into a contract that becomes binding only if certain condition is fulfilled or the specified event occurs. For example, a contract to sell a property subject to receiving the planning permission.
What Are Conditional Contracts?
Although it's better to avoid conditional contracts, parties may insist upon them in certain cases. Since contracts of this type are uncertain and fraught with risk, they are usually not used for regular business transactions.
Conditional contracts may be useful in the following circumstances:
- Where the buyer could not search a local property or conduct a home survey
- Where mortgage arrangements are not yet finalized
- Where the contract depends upon the planning permission, which is not yet granted
- Where the sale depends upon some third party's permission, such as the landlord's consent
- Where the parties cannot enter into a regular contract due to some unresolved issue, for example, where the seller is in the process of acquiring part of the estate
Property lawyers mostly advise their clients against entering into a conditional contract unless it's absolutely necessary.
You should never enter into a conditional contract pertaining to an unconditional sale or purchase. That's because if something goes wrong with the conditional contract, then you may face difficulties with the related (unconditional) transaction too. If the original contract of sale or purchase does not take place, it may amount to a breach of contract.
It's always advisable to look for an alternative option before entering into a conditional contract. For instance, rather than making your contract conditional upon receiving the planning permission, you can wait for the permission.
Drafting a Conditional Contract
If at all you need to enter into a conditional contract, make sure you include a specific time period. If the condition is not met within the specified time limit, you can withdraw from the contract.
Be careful while drafting the condition or the event on which the contract is based. Try to be as precise as possible. The condition must be certain and stated in clear terms; else the contract may be declared void by a court.
Contracts conditional upon a mortgage: While drafting a contract conditional upon a mortgage, you should include the following details:
- The lender's name
- The advance amount
- Time period for determining the application
- Whether the buyer can withdraw from the contract if certain conditions are attached to the mortgage offer
Contracts conditional upon a survey: These contracts should include information such as:
- The name of the surveyor
- Type of survey
- Specific defects on the basis of which the buyer can terminate the contract
- Time frame for completing the survey
What Is Acceptance?
When a party agrees to the offer made to it, it's called an acceptance. The acceptance can be done through an express act or can even be implied by the conduct of the party. When a party accepts an offer, it results in a legally binding contract.
Acceptance is in fact a party's compliance with the terms of the contract placed by the offering party. When a person keeps the gift offered to him by someone, it's an implied acceptance by conduct. Another example of acceptance is when a bank makes a payment against a check.
In the case of an insurance contract, acceptance happens when the insurer accepts a person's application and agrees to issue the applied policy for compensating the insured against certain loss, such as hospitalization, fire, or theft.
In a contract of sales between merchants, the buyer is considered to accept the goods that are not as per his order if any of the following happens:
- The buyer tells the seller that he will keep the goods.
- The buyer does not reject the goods.
- The buyer does something that shows that he has accepted the ownership of the goods, for example, if he starts selling them to his consumers.
Types of Acceptance
- Conditional acceptance: A conditional or qualified acceptance takes place when the offeree accepts the offer with some changes in the terms of the offer. It amounts to a counteroffer and does not result in a contract unless the original offerer accepts the counteroffer.
- Express acceptance: When a person explicitly agrees to the offer made to him, it is called an express acceptance.
- Implied acceptance: If the offeree does not expressly convey his acceptance but acts in a manner that indicates his assent, it's known as implied acceptance.
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