Care needs to be taken when drafting special conditions for contracts. All too often, poorly drafted special conditions give rise to disputes between parties, or give one party rights to terminate or claim compensation against the other party.
Below are four tips to help you accurately draft special conditions and ensure your clients do not face the consequences.
1. Include these elements
When drafting special conditions, consider the following and include all relevant details:
1. Does the special condition impose an obligation on a party?
Details to include:
- Whether the seller or the buyer must comply with the obligation.
- The time and/or date by which the obligation must be complied with. For example: within X days of the Contract Date/prior to settlement of the Contract.
- Exactly how the obligation may be satisfied.
2. Does the special condition give a party a right to terminate the contract?
Details to include:
- Whether the seller, the buyer, or both parties have a right to terminate.
- The circumstances in which the termination right may be exercised. For example: if a party fails to comply with a certain obligation (such as the seller failing to carry out certain repairs to the property)/if a specified event occurs or does not occur (such as the buyer entering into an unconditional contract to sell its existing property).
- The time and/or date (if any) by which the right of termination must be exercised in order to validly terminate the contract. For example: within X days of the Contract Date/after 5:00pm on a certain date.
- How the right of termination may be exercised. For example: by written notice to the other party.
2. Use clear language
The language used in drafting special conditions must be clear and unambiguous. It must allow both parties to accurately determine their respective rights and obligations. If the wording of the special condition allows it to be interpreted in more than one way, then the special condition may be completely ineffective and unenforceable. Depending on the nature of the special condition, the entire contract may be invalidated by the special condition.
3. Develop precedents
Given the importance of special conditions, we suggest developing a bank of precedents to be used in contract preparation when required, rather than risking the need to draft conditions on the fly and write them in by hand. Using precedents will ensure that contracts are prepared correctly, that disputes do not arise and that contract performance and settlement occur smoothly.
4. Transfer the risk
If there is any doubt as to whether a special condition has been drafted correctly, it is a good idea to liaise with a solicitor to review the condition prior to contract signing. Doing so will avoid contracts having to be rescinded and/or re-executed, and will save all parties involved time and money.