In real estate transactions, it is common for parties to include a suspensive condition in their contract, such as obtaining a mortgage loan, the issuance of a title free of easements, conducting a soil study, or obtaining an urbanization permit. What is a suspensive condition? What are its effects? Our legal expert sheds light on this issue.
Concept of the suspensive condition
The law defines a suspensive condition as a future and uncertain event, still unknown to the parties to an agreement, on which they make the birth of a conditional obligation dependent. In the case of a real estate sale, for example, the buyer will fulfill their commitments to the seller provided they obtain their financing.
A suspensive condition is therefore a condition that, if not fulfilled, renders the contract for which it was concluded null and void. To be valid, this condition must not depend solely on the will of one of the parties. In such a case, the condition is said to be potestative and is not valid. This would be the case, for example, if you buy a new property on the condition of selling your old property.
Effects
The law specifies that a contract with a suspensive condition is only validly formed once the condition is fulfilled. This is why, in practice, and specifically in the context of real estate sales, many prospective buyers believe they are not contractually bound until they have obtained their financing.
These buyers see the suspensive condition as an escape route in case they are no longer willing to acquire the property. Think again!
Indeed, the buyer who has committed under a conditional obligation cannot evade their commitment by preventing, through their own fault, the condition from being fulfilled.
Jurisprudence considers that it is the principle of good faith execution of contracts that requires the buyer to act to the best of their ability and loyally to obtain their financing. Consequently, the buyer must make all reasonable efforts to obtain their loan, for example by seeking financing from a bank other than the one they usually deal with.
Sanctions
In case of fault, negligence, or carelessness on the part of the buyer, the suspensive condition will be deemed fulfilled. The sale will be perfect and must be executed. It also follows that registration fees will be due and the seller may seek judicial enforcement or resolution of the sale as well as additional damages.
Recommendations
On the one hand, we suggest drafting the clause that provides for a suspensive condition in a precise and unambiguous manner, particularly emphasizing the time frame you intend to have to obtain your loan.
On the other hand, be proactive! Do not hesitate to consult several financial institutions and ensure you continuously inform the seller of your progress.
Finally, we recommend keeping the refusals from financial institutions carefully to be able to present them to the seller in case of a dispute.