CONTINGENCIES

Real estate contracts commonly contain “contingencies.”  As a legal matter, if a contingency does not occur, then the contract is not enforceable and the transaction will not be completed.

There is a distinction between a contingency and a covenant or promise in a contract.  If a contingency does not occur, then the contract is not enforceable, and neither side has any liability to the other.  If a covenant or promise does not occur, however, then, the party who made the promise may have breached the contract and may have liability to the other side.  It is thus very important, in drafting real estate contracts, to be clear about whether a particular aspect of the agreement is a contingency or a covenant.

Common contingencies include:

-                             Loan contingency. The buyer will not purchase the property unless he or she can get a loan to do so.

-                             Inspection contingency.  The buyer has a certain number of days in which to inspect the property, and to reject it, if the condition is poor.  Most inspection contingencies say that the buyer can reject the property for any reason, during the inspection contingency period.  Sometimes, however, the buyer will be able to back out of the contract only if the property does not meet certain specified conditions.

-                             Sale contingency.  If the buyer can not afford this property, without selling his or her current property, a purchase offer will sometimes be contingent upon selling another property.

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