You may hear conditions clauses being called “weasel clauses, or contract contingencies”. Conditions clauses allow the buyer or the seller to end the contract upon the happening or non-happening of an event. Your purchase contract has several key conditions clauses. This is because in wholesale transactions you will want the right to end the contract or re-negotiate the purchase price if the property turns out to be less attractive than you thought.
For example, you may discover that there are additional liens on the title report that the seller did not know about or disclose. Your retail flipper may inspect the property with you (after you have a contract with the seller) and may discover that the foundation is slightly cracked. A conditions clause allows you to re-negotiate the contract or cancel the contract upon a certain condition being found.
We keep our conditions clauses very broad. For example, one of our clauses allows you to end the contract or re-negotiate if you find out that the property is not worth what you originally thought. For example, assume that you do some preliminary market research and believe the property is worth $150,000 and then sign a purchase contract with the seller. Later you discover the property is really only worth about $120,000 and that your comparable sales were skewed. The right contract conditions clause would allow you to re-negotiate or simply end the contract.
Contract Conditions Clauses
Conditions clauses are common, but not required for a contract to be valid. Nevertheless, they are a very good idea. Here are some common examples:
Financing Contingency: Contracts may be contingent upon the buyer obtaining financing. For example, the following contingency is in place (just in case) a new loan is required but cannot be obtained:
“If a new loan shall be required for Buyer's purchase of said property, then this agreement is subject to Buyers obtaining a new loan for the amount of $____________________ with an interest rate NOT higher than _____________% and an amortization period NOT less than ____________ months.”
Subject to Inspection: Here is an example from our contracts: Contract and terms are subject to:
[Buyers] “…review the properties” marketability, value and/or condition with Buyer's agents, business partners, and associates. If this is not satisfactory, Buyer may end this agreement without default or adjust the price and terms of this agreement.”
Title Contingency: Here is an example of contingency that allows for re-negotiation or an end of the agreement if there are title issues. This example was taken from our contracts:
[This agreement is subject to] “…a title review of said property. If title clouds, liens, undisclosed issues, defects affecting title, property surveys, ownership disputes or clouds, zoning issues, debts, levies, or restrictions of use of any kind, are found then the Buyer has sole discretion to end this agreement without default. In the alternative the Buyer may adjust the price and terms of this agreement without prejudice or default.:
Approval by Buyer's Partner: This is the notorious conditions clause that everyone talks about. It simply reads:
“This agreement is subject to approval by buyer's partner.”
This clause basically allows the buyer to get out of the contract for nearly any reason, because typically the buyer's business partner may be their friend, spouse, etc.
However, before you get too carried away with conditions clauses, understand that exercising a conditions clause unfairly or at the last minute and thereby causing loss to the seller, will make you liable for violating your implied duty of ‘good faith' and ‘fair dealing'. Moreover, you only need one or two good conditions clauses in a contract to be sure you are protected.