“Contract noun |ˈkänˌtrakt| a written or spoken agreement, that is intended to be enforceable by law”
The most important element in any real estate transaction is the contract. It defines what both parties agree upon when trading a property. It is without a doubt necessary to have a lawyer handle all the legalities, however you must educate yourself as a homebuyer and take preventative measures.
A contract has six essential elements:
An offer must be communicated to the offeree (second party) before it can be accepted. Likewise, the acceptance must be communicated to the offeror (you) before it can be said that an agreement has been reached. If the offeree attempts to alter the terms of the offer, he or she is in fact making a counter-offer which will have to be accepted by the original offeror before a contract will be formed.
An offeror may revoke his or her offer at any time before it is accepted. If an offeree wants to guarantee that an offeror will keep an offer open for acceptance for any certain period of time, this can be done by means of type of contract known as an option agreement. This is a separate agreement supported by its own consideration (form of payment), in which the person granting the option promises not to revoke the offer until a certain time period has passed. An offer is terminated or expires when any one of the following occurs:
• A time limit is specified in the offer and the offer is not accepted within the limit;
• No time limit is specified in the offer but a reasonable time has passed;
• The offeror revokes the offer and communicates this revocation to the offeree before acceptance;
• Either party becomes insane or dies before the offer is accepted;
• The offeree rejects the offer
An agreement is formed through offer and acceptance, however for the contract to be enforceable, the party trying to enforce the contract must have “paid” or given up something in return for the promise. It is not uncommon to hear someone acquiring title for $1, as it is all about the conditions of the agreement.
3) Intention to enter a binding contract
A binding contract will not come into existence unless it can be shown that the parties intended their agreement to affect their legal relations.
4) Legal and mental capacity of the parties to enter a contract
The law imposes restrictions on the contractual capacity of certain types of persons or bodies, specifically those whose ability to contract may be impaired such as; infants, mentally incompetent persons, and companies or societies.
5) Lawful objective or subject matter
A contract that contravenes the Criminal Code will be void. Contracts involving the breach of civil law, rather than criminal law, are also invalid.
6) Genuine consent
Parties to a contract must genuinely consent to the terms which bind them, meaning the parties must have a clear understanding of the substance of the contract. A lack of genuine consent can negate the contract.
A condition precedent is the formal term for what is commonly called a “subject” clause. The conditions are the most essential terms of the contract, going to the heart or root of the agreement. Essentially, this make the parties’ obligations conditional upon or subject to the happening of certain events. If these events do not occur, the parties are not required to perform.
For example, the property is often sold “subject to” the purchaser being able to obtain financing. If, within the time specified, the purchaser can not obtain financing, the parties have no further obligations under the contract. Until the conditions precedents are fulfilled, waived or not fulfilled, the vendor is not free to sell to another party with out the risk of becoming liable to two purchasers.