Difference between term and condition

What is the difference between a term and a condition when buying or selling a home? Both terms come up often when buying or selling real estate. Here is an explanation about the difference between a term and a condition. Also, some simple examples are included.

A condition needs to be satisfied to close the deal and firm up the sale.  Several conditions are pre-printed in the (Calgary) real estate contract between buyer and seller:

• Financing
• Property inspection
• Sale of buyer’s property
• Condominium documents in case the purchase or sale is a condominium.

There is always a specific date and time when the conditions must be fulfilled. This is called the condition date. Most often, a buyer needs 7 to 10 business days to fulfill their conditions. However, that exact date and time is negotiated between buyer and seller. Once a buyer is satisfied with the financing, home inspection or other condition, the buyer sends a notice to the seller to waive those conditions. At that moment, the property is firmly sold to the buyer, and the buyer waits for the possession day to receive the keys.

Not waiving a condition

Not fulfilling a condition means that the buyer must send a non-waiver to the seller. That means the deal is ‘dead’ and the deal falls through. The home goes back onto the market, the buyer walks away and gets his deposit back. There can be several reasons why a buyer does not meet (or fulfill) a condition:

• When the lender doesn’t approve the mortgage, and the buyer can’t get financing.
• The property inspection is unsatisfactory, and the buyer decides not to buy the home due to defects.
• When the condo documents show anything unsatisfactory, for example a shortage in the reserve fund.

More conditions that a buyer can ask for

The above-mentioned conditions are pre-printed in the purchase contract. However, the contract offers room to add other conditions. This is basically anything a buyer can come up with, and as long as the seller accepts it. A few examples of other conditions can be:

• The buyer must review the title to his/her satisfaction.
• ‘Grandma’, who is paying for the property, must approve off the property first.
• The plumber must determine if a kitchen can be installed in the basement.
• The renovator must confirm that a certain wall can be removed.

Seller’s conditions in the real estate contract

Not only buyers, but also sellers may write a condition into the contract. This is not very common, but a good example is when a seller and buyer negotiate on a backup offer. In that case,the seller must write a very important condition for this backup offer: This offer is only valid when the buyer of purchase contract {number} sends a non-waiver.

Another example could be when a buyer asks a seller to repair something, but the seller wants to verify the cost of that repair first. The seller will get a specific deadline, date and time, when that condition needs waiving, in order to keep the transaction alive.

This last example, about the seller needing to repair something, leads us to the explanation of the terms.

What is a term in a real estate contract

Terms in a real estate contract need to be performed after conditions are waived, but before the possession. Conditions only take 5 to 10 business days. But once conditions are waived, it can take 2 to 12 weeks before possession date.

A few simple examples of terms in a real estate contract are:

• The buyer wants a walk-through, 24 hours before taking possession.
• Or the buyer wants something repaired before possession.
• Perhaps the buyer wants the property to be professionally cleaned.
• Or the buyer wants something cleaned up in the yard because the buyer has concerns that the seller will not remove junk or garbage. And yes, an example can be dog poop, too!

These few examples of terms are very common in real estate transactions in Calgary. It makes sense that these requests cannot be fulfilled before the condition date. But they can be done after waiving of the conditions and before possession.

In Calgary, it can be winter and -40C, so it is not uncommon that some repairs can’t be done before possession. In that case there are a few options. The term gets a date and time after possession, or the seller reduces the selling price with the estimated cost.

A term for a dollar amount

A buyer needs to make sure that the terms are indeed fulfilled by the seller. Therefore, a consequence must be clearly written for the seller if the work isn’t done, or isn’t done properly. Usually, this consequence is a hold back of a dollar amount. If a certain repair is an estimated $1,000, then the buyer’s lawyer will hold back this $1,000. The buyer keeps the $1,000 if the repair is not done by possession day.

It is important to get the correct wording on terms. A term needs at least:

• A date and time when the terms must be fulfilled.
• A consequence, which is usually in the form of a hold back of funds.
• A means of how it should be performed. For example, by a professional cleaning company, or a professional plumber. This should be proven by an invoice.

Without these specifics, the buyer avoids surprises that the work is only half done, or the repairs are done by the ‘cousin of his sister’s brother-in-law, who was married with the neighbor’s mother’. The proof must be there in the form of an invoice, and the work is performed by company ABC, a licensed and bonded company.

In short, conditions need to be met by a certain time and date to firm up the transaction with a waiver of conditions. Terms need to be performed after conditions are waived, and usually before possession.

The above is general information only, and is not meant to be legal advice upon which anyone may rely. If you have questions about a specific property or transaction, please speak to counsel for definitive advice.