What Is a Condition Precedent?
In real estate contracts, a condition precedent acts as a safety valve. It is a specific event that must happen before the rest of the contract goes into effect. If the condition does not occur, the parties are released from their obligations, and the contract is typically canceled without penalty.
The most recognizable condition precedent in real estate is a financing contingency. A standard purchase agreement states that the buyer's obligation to purchase the home is contingent upon them securing a mortgage by a certain date. Obtaining the loan is the condition precedent. If the bank denies the loan, the condition fails, the buyer is legally excused from buying the house, and they get their earnest money deposit back.
Common Conditions Precedent in Florida Real Estate
Beyond standard financing, sophisticated commercial and residential contracts rely on numerous conditions precedent, such as:
- Appraisal Contingency — The contract is only binding if the formal appraisal values the home at or above the agreed-upon purchase price.
- Inspection Contingency — The buyer must be satisfied with the results of a physical home inspection.
- Clear Title — The seller must deliver a title free of liens and defects. If the seller cannot clear the title, the buyer is not obligated to close.
- Zoning Approvals — In commercial land sales, the buyer's obligation to close is often conditioned upon the city granting a conditional use permit or rezoning the land for the buyer's intended business.
Waiver and Breach
A party who benefits from a condition precedent can choose to waive it. For example, if a home appraises for $10,000 less than the purchase price, the condition precedent fails. However, the buyer can choose to waive the appraisal contingency, pay the $10,000 difference in cash, and force the sale to go through anyway.
If a buyer fails to actively try to fulfill the condition (e.g., they never actually apply for the mortgage), they cannot use the condition precedent as an excuse to break the contract. They will be found in breach and will likely forfeit their deposit.
Related Terms
- Purchase Agreement — The contract containing the conditions
- Earnest Money — The funds protected by the condition precedent
- Condition Subsequent — A condition that terminates an existing contract, rather than starting one
Barnes Walker Real Estate Contracts
Barnes Walker's attorneys draft highly specific conditions precedent for commercial real estate developers, ensuring their obligation to purchase land is strictly tied to securing necessary zoning and environmental approvals. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC