Contingencies in a Preliminary Sales Agreement

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Contingencies: Definition

Suspensive conditions (or contingencies) are defined by the Civil Code (art. 1304) as conditions that make the execution of a contract mandatory if they are met. Conversely, the non-fulfillment of these conditions suspends the obligation to execute the contract. In the context of a preliminary sales agreement, the contract binding the buyer and the seller establishes a conditional transaction obligation. The obligation depends on future and uncertain events specified in the contract: obtaining a mortgage, selling a previous home, or obtaining a building permit are contingencies that allow you to back out of a preliminary sales agreement.

Contingencies: FAQ

How do contingencies work in a real estate contract? Winter Immobilier answers all your questions regarding the different suspensive conditions, their validity periods, and the available cancellation options.

Are contingencies mandatory?

In a preliminary sales agreement, only one contingency is mandatory: the one related to the buyer obtaining a mortgage. Any other suspensive condition added to the preliminary contract is optional. The number and purpose of the contingencies therefore vary on a case-by-case basis. Their goal is always to protect both buyers and sellers from abusive withdrawals or dead ends.

What is the validity period of a contingency?

The law sets the minimum duration of a suspensive condition at one month, starting from the signature of the preliminary sales agreement. Most often, the timeframe set by the contingency clause in the contract ranges from 45 days to 2 months. This period is intended to allow time to receive an answer from lending institutions. It is possible to negotiate a longer validity period before signing the contract.

Can you request an extension for contingencies?

If the validity period of the suspensive condition is exceeded, the buyer has an additional grace period of 8 days to justify their delay. If a loan application is currently being processed, it is also possible to obtain an extension of the suspensive condition upon request, meaning it is postponed to a new date (which effectively extends its validity period). An addendum to the preliminary sales agreement must then be drafted to modify its validity period and postpone the signing date of the final deed of sale.

What are the effects of a contingency not being met?

The non-fulfillment of a single contingency clause leads to the cancellation of the sales contract, regardless of how many other contingency clauses have been fulfilled. In this scenario, neither the seller nor the buyer can be penalized. Any funds committed are refunded, notably the deposit or immobilization fee. The non-fulfillment of a contingency clause prevents either party from forcing the execution of the sale or claiming damages.

How do you cancel a contingency?

It is possible to waive a suspensive condition, particularly if you are paying for your property in cash and do not need the protection of the contingency clause related to obtaining a bank loan. To cancel this clause, you must handwrite a statement in the preliminary sales agreement explicitly stating that you formally waive this suspensive condition. This waiver will also appear in the final deed of sale.

What are the non-financial contingencies?

Among the non-financial contingencies that can be added to a preliminary sales agreement are:

• Administrative authorizations (e.g., obtaining a building permit when purchasing land)
• Easements and rights of first refusal (the absence of easements and local authorities waiving their right of first refusal)
• The prior sale of a property owned by the buyer
  
  

Common contingencies in a preliminary sales agreement

A preliminary sales agreement contains at least one financial contingency clause (or a mention of the buyer waiving this clause). Other suspensive conditions can be added on a case-by-case basis, depending on whether the sale involves land, commercial premises to be converted into residential use, etc. Here are about ten contingencies you should know.

Obtaining a mortgage

The most well-known of the contingency clauses, the financing condition is mandatory whenever the buyer uses a loan to finance the property acquisition. In the preliminary sales agreement, this clause precisely defines the terms of the loan requested by the buyer: amount, repayment duration, and interest rate. The condition is considered unfulfilled when two rejection letters from distinct banking institutions are presented.

Obtaining a bridge loan

A bridge loan allows a buyer to finance a real estate purchase even though they have not yet sold the property they currently own. With the seller's agreement, it is possible to include a contingency in the preliminary sales agreement related to obtaining the bridge loan.

The sale of a property by the buyer

If the buyer does not wish to take out a bridge loan, they can negotiate a contingency clause linked to the prior sale of their own property. Including this suspensive condition is trickier to negotiate with the seller.

Presentation of technical diagnostics

Depending on the construction year of the property involved in the transaction, the presentation of technical diagnostics is mandatory: this notably includes energy performance diagnostics, electrical diagnostics, and asbestos or lead risk diagnostics. Failure to present the mandatory diagnostics leads to the cancellation of the preliminary sales agreement. A non-compliant diagnostic obligates the seller to carry out repair work before the sale is finalized.

Full availability of the property

Contingencies can be tied to the full availability of the property for sale, meaning:

• The absence of easements

• Local authorities or tenants waiving their right of first refusal

• The absence of mortgages on the property

Prior completion of repair work

The buyer can negotiate the addition of a contingency clause stating that the obligation to purchase is subject to the current seller and owner carrying out specific work (e.g., bringing the property up to code, etc.). The clause must then specify the exact nature of the work to be done.

Obtaining a building permit

When purchasing land, the buyer can request the addition of a contingency related to obtaining a building permit in the preliminary sales agreement. The validity period of the clause will be calculated based on the standard administrative processing times for issuing a refusal or approval of the building permit.

Obtaining other administrative authorizations

Other administrative authorizations can be included as contingencies in the preliminary sales agreement, notably:

• Authorization from the condominium syndicate regarding work the buyer plans to carry out in the property

• Authorization to change the designation or use of a property

Validation of property compliance

It is also possible to dedicate a contingency clause to the property's compliance with urban planning or condominium rules. In the event of non-compliance, the clause can specify the obligation to perform work prior to the sale.

Winter Immobilier advises you on your future investment in Nice

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