Define Subject to Contract: Everything You Need to Know
To define subject to contract the first step is to understand that a contract is a promise between at two or more parties.3 min read
Updated November 3, 2020:
To define subject to contract the first step is to understand that a contract is a promise between at two or more parties. A contract is a legally binding document and can be enforced by the law if the promise(s) is not fulfilled.
Types and Elements of a Contract
There are three types of contracts that can be utilized. They include:
- Simple contracts, which are a contract but not a deed.
- Bilateral contracts, which shows the promise of one party that will be fulfilled by another party. In a sale of goods, this can be the price that will be paid and the date of delivery that is promised.
- Unilateral contracts, which show that an action will take place by one party to receive something in return from the other party.
The difference between bilateral and unilateral contracts is that bilateral is a promise to complete a task in return for the other party doing something. A unilateral contract is different because it is a promise to pay for services rendered by someone else.
A contract includes the following three elements:
- The offer, which is an explanation of the terms of the contract.
- The consideration, which is what will be exchanged between the parties for completing the terms of the contract.
- The acceptance, which is when the parties agree to the terms of the contract and it becomes a binding, legal document.
If a contract is broken, the party who was subject to the breach is entitled to receive financial compensation to make up for what was lost, whether it be money, time, or other considerations.
Subject to Contract
When subject to contract is added to a letter, email, or another form of communication it is stating that the communication isn't legally binding until it is agreed to by all parties. This may also appear as subject to lease or subject to license.
By adding the term, you are confirming that you are sending a preliminary proposal to the supplier or customer. Subject to contract phrasing is usually used in transactions including property and commercial contracts. A contract is not legally binding until two or more parties have reviewed and agreed to the terms of the contract.
Subject To Clause in Real Estate
In real estate sale contracts, a subject to clause is used to note a condition of the contract. A sale of real estate property may be deemed subject to the sale of another property. If the sale of the other property does not go through in the agreed upon time frame, the contract is no longer valid.
The sale of a house may also have a subject to clause when the purchase of the house is contingent on the buyer selling a property to finance the purchase. If the buyer is unable to sell the property, the sale is not completed and invalidates the contract. If a subject to clause is in the contract, the seller commits to that buyer for a period of time and cannot accept any other offers during that time period.
If another offer is received by the seller within the subject to time period, the seller can request the buyer remove the clause. If the buyer agrees, the seller can then accept another offer. This may result in better terms and conditions for the seller. The buyer can also stay with the original contract terms and continue the process of selling their property, meaning the seller will have to wait until the contract time period is over before accepting another offer.
Advantages and Disadvantages of Subject To Clause
The seller can see an advantage of a subject to clause if they can continue to show the property to potential buyers. This allows the seller to maintain control of who will buy the property. Conversely, the buyer benefits from the clause if their purchase of the home is dependent on the sale of another property. The buyer can lock in the purchase price and terms while also extending their time to sell their other property.
The main disadvantage is on the buyer. If they are unable to sell the other property in the agreed upon time period, the seller can then proceed with selling the house to another buyer. If the seller has waited the proper time, they are no longer under the obligation of the contract.
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