Take care when you sign conditional deals

Monday 29 March 2004

When entering a contract for sale and purchase of land, it is common practice for the contract to be made subject to satisfaction of various conditions, inserted for the benefit of the purchaser. Such conditions may include obtaining approval of mortgage finance or a satisfactory builder's or valuer's report on the property.

By The Landlord

If a contingent condition is not satisfied by the due date, either party may give notice cancelling the contract. Often a purchaser is under the mistaken belief that by simply making the contract subject to finance (or any other contingent condition), they are able to use that condition to cancel the contract if they decide not to go ahead with the purchase for any reason.

It is clear, however, that where a contract is subject to a contingent condition, the purchaser must do all things reasonably necessary to enable the condition to be fulfilled.

If a purchaser does cancel a contract on the basis that a condition has not been satisfied and the vendor disputes such cancellation, it is up to the vendor to prove the purchaser failed to take all reasonable steps to satisfy that condition.

If, however, the condition required the purchaser to be "satisfied" with certain matters, the purchaser has the burden of proving to the court that he or she was not satisfied on a reasonable and fair basis. It is clear that it is an objective test that applies in deciding whether a purchaser was lawfully entitled to cancel a contract, unless it is apparent from the wording that satisfaction of a condition is to depend entirely on a purchaser's own subjective opinion. The following two cases illustrate how these rules apply.

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