What is the difference between a term and a condition in a purchase contract?

REALTORS^® spend a lot of time living in a contract world. Even though AREA produces and maintains a huge catalogue of provincially standard forms for the exclusive use of members, the simple fact is that no two homes, clients, and subsequent contracts are alike. Every contract is unique to the property, situation and clients, ensuring there is never a dull moment in the real estate industry. The two most common tools used to frame the real estate purchase contract in ways that suits the parties, and their agreement with each other, are “terms” and “conditions,” and it is critical to understand the differences between them. In a hot market, it can be tempting to try and use a highly restrictive term where a condition should be, in an attempt to make a “condition free” offer. This can have devastating results for the contract and potential legal consequences as well, so let’s walk through the differences and applications of each.

The contract is its terms
In a broad sense, every aspect of a contract can be considered a term since it is formed by the will and agreement of the parties. Contracts are loaded with terms from start to finish, filling every line with crucial details of instructions, behaviours, and consequences the parties mutually agree to. The AREA standard purchase contract, for example, is constructed in a way that balances both the buyer and seller's interests using terms that clarify the roles and obligations of both parties.

Additional terms
In addition to general contract terms, REALTORS^® will often craft custom terms to add more detail to the agreement between the parties, even seeking legal advice in many cases. Once agreed to, these additional terms are framed to be immediately binding and enforceable upon the parties with the same force and effect as all the other terms of the contract. Terms create fixed, static, non-variable agreements between the parties such as acknowledgments that the parties will complete a certain task, pay costs for certain things, or even alter other parts of the contract terms. Terms are not unilateral and can only be altered by mutual amendment between the parties.

Conditions clarity
A condition is a different animal altogether and differs from terms in two distinct ways. First, a condition is generally unilateral, giving one party an opportunity for due diligence which is not afforded to the other. For example, a buyer may have a financing condition that allows them to bind the seller to a set price and terms while they seek a lender to finance the deal. If a lender isn’t willing to finance the deal, the buyer has the unilateral right to end the entire contract if they wish. The second distinction is that the condition must be removed from the contract before the contract can be executed. Unlike a term, a condition is waiting for additional action to make the contract unconditional, or the contract collapses. During this period, the seller cannot do anything but wait. In the above example, I used a buyer's condition, however, both buyers and sellers may have unilateral conditions in the contract. A strict note of caution: despite the condition being unilateral, any party granted conditions must act reasonably and in good faith to fulfill their conditions or risk litigation for breaching their obligation. Conditions are not to be used as “outs” in the contract in cases of buyer or seller remorse. Once the conditions are agreed to, the party with the conditions is agreeing to do what they can to make it happen.

Square peg, round hole
Terms and conditions are not the same and should never be confused. If a client needs to accomplish some level of due diligence before proceeding, this should be noted in the contract as a condition and provide a clear understanding of the resulting expectations and timeframes. On the other hand, if the desire is to bind the parties immediately and permanently, then a term should be used to detail the agreement between the parties. Since terms and conditions function in very different ways, the expert use of them to provide the right protection for clients is a very important aspect of a REALTORS^® requirement of reasonable care and skill.

The average real estate contract generally uses both terms and conditions because they are different tools for different purposes. When understood and used correctly, the client's interests are protected, space is given for additional due diligence, and clarity of expectation and purpose is achieved between the parties. This makes for the best of transactions and prevents unnecessary litigation or frustration for everyone.