What to do if suspensive condition is not going to be met
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A typical situation encountered in a property transaction: The deed of sale has been signed, the intended buyer is applying for a loan but paperwork and delays at the bank slow things down. Suddenly the transferring attorney lets the buyer know that they only have a few days left to satisfy the suspensive condition in the deed of sale. What does all of this mean and what happens if the loan is given, but it's a day late?
A suspensive condition is a condition which suspends the coming into effect of a property sale agreement until a certain future event occurs, which event is usually tied to a specific timeframe. For example, the buyer's loan at a financial institution must be approved before a certain date, or, the buyer must successfully sell his existing property before a certain date. When such a suspensive condition in a deed of sale is met the agreement becomes unconditional and binding and the process of transferring the property to the buyer can officially start. If the condition or conditions are not met, the entire agreement will be null and void from the start of the agreement.
So, what does this mean?
It means that the agreement is void from the start as if it never existed, which is very different to a valid agreement that has been cancelled after the fact. Where the agreement is void, the seller cannot institute a claim against the buyer for specific performance or damages as could be done should there have been a valid agreement.
But, can the buyer and seller after the deadlines agree to continue with the agreement despite the conditions not having been met, because the buyer has convinced the seller for example that the loan will come through the next day?
In the recent case Codevilla v Kennedy-Smith NO and Others the court held that the general consequence of a failure to meet the suspensive condition in an agreement is that the contract has no legal force. The applicable principles are that a suspensive condition cannot be waived or extended after the time for fulfilment of the condition has passed. An agreement that has lapsed due to non-fulfillment of a suspensive condition or in the absence of a resolutive condition cannot be revived and it is necessary for the parties to enter into a new agreement.
What this means in practice is that once the sale agreement has lapsed there is no turning back the clock and the parties cannot after the fact revive the agreement because the loan has come through or the house was sold the next day. The only way for the parties to fix it is by entering into a new agreement.
That said, before a suspensive condition expires there is still opportunity for the parties to agree to extend or even waive the suspensive condition. If allowed by the main agreement, the parties can enter into an addendum to the main agreement wherein they extend the deadline or agree to waive the suspensive condition. But, this addendum must be correctly entered into by the parties before the deadline for the suspensive conditions, as once the deadline rolls by and this was not done, the agreement has lapsed and a whole new agreement must be entered into.
If you find yourself in the middle of selling or buying property, take note of any suspensive conditions in your agreement of sale and make sure you consult your property specialist timeously to help you add an addendum to the agreement if it looks like the conditions will not be met.
Author: Tonkin Clacey Inc
