What are “Subject” Clauses In a Real Estate Contract
When you are entering into a contract to purchase a home, you will come across the “Subject” or condition clauses. Your Realtor should explain to you which clauses are most suitable for your situation. But what exactly are they? Hopefully after reading the following explanation from the Real Estate Council of British Columbia you will have a much clearer picture.
The purpose of a subject clause (also know as a condition precedent) contained in an offer to purchase is to set out a specific condition which must be fulfilled before the sale can go through, although the contract is legally binding once it is signed by both parties.
Subject clauses must be carefully and precisely worded. You would be wise to get professional help in composing them; however, it is ultimately your responsibility to be sure the clauses mean what you want them to mean.
There can be as many subject clauses as you are able to negotiate with the seller; however, the fewer you put into an offer, the more serious you seem as a buyer and the better the chance is that your offer will be accepted. Remember that you are, in effect, asking the seller to take the home off the market during the period while you are attempting to fulfill the conditions you have set.
Some possible items you might wish your purchase to be “subject” to include:
- a satisfactory professional building inspection
- the arrangement of the financing you require
- if the home is a strata lot, satisfactory review of all relevant strata documentation, including engineer’s reports and/or building inspection reports, if any…etc
When you place “subject” clauses on your offer to purchase, you are required to use every reasonable effort to see that the conditions are satisfied. It is important to know that subject clauses are not “escape” clauses that allow you to avoid your responsibilities.
It is up to you to make sure the subject clauses mean what you want them to mean legal responsibilities in the contract. Once you have fulfilled the conditions, written notification should be given to the seller that you are removing the subject clauses.
If you are unable to meet the conditions after making every reasonable effort to do so, the contract ends and there is no legal obligation to complete the purchase. It is important to remember that if the brokerage is holding your deposit, both you and the seller must sign a deposit release form prior to the deposit being released to you.
A seller may wish to accept your offer containing subject clauses, yet still be free to consider other offers until you have removed the conditions. To allow his or herself this freedom, the seller may ask for a clause in the agreement which permits the seller to require you to remove all subject conditions within a short, specified time period (usually between 24 and 72 hours) if the seller receives another attractive offer. If you cannot do so, your conditional contract comes to an end. Sellers are most likely to request this time clause where you have made an offer, which is subject to the sale of your current home.