There are always two stages to a property sale: the first is the signing of a private preliminary contract, often called a compromis, and the second is the signing of a deed of sale before a notary. The preliminary sale agreement is the most important stage, as it sets out the parties' agreement on the price, the property to be sold and the conditions of the sale. Some of these conditions deserve particular attention: the conditions precedent.
Built into the preliminary sale agreement, these make the completion of the final sale subject to the occurrence of future, uncertain events. In the preliminary sale agreement, each party undertakes to complete the sale on condition that an event foreseen in advance occurs within a given period. The effects of the contract are then suspended. If this event occurs, the parties will be obliged to complete the sale. One of the parties may give notice to the other party to perform its obligations, on pain of damages (a penalty clause is often included to this effect). Otherwise, the compromis will lapse and the sale will not go ahead.
The most common example is the condition precedent relating to obtaining a loan, which makes completion of the sale conditional on the buyer obtaining the necessary finance.
The suspensive condition mechanism
The conditions precedent included in the preliminary sale agreement allow the sale to be suspended until one or more events occur. In this case, the parties have already committed themselves in the preliminary sale agreement. As soon as the event occurs, the sale becomes final. All that needs to be done to make the sale effective is to record the fulfilment of the conditions precedent in a notarial deed. The seller and buyer will then be obliged to sign the deed of sale.
On the other hand, if the conditions precedent are not fulfilled, the preliminary sale agreement is deemed to have lapsed and each party is free to move on.
However, it is possible to sign the final deed of sale even if the events set out as conditions precedent have not occurred. A distinction must be made between the parties in whose favour the conditions have been inserted. The party in whose favour the condition precedent was included may waive it. For example, a buyer who has signed a preliminary sale agreement subject to the condition precedent of obtaining a loan may decide to go ahead with the sale even though he has not obtained the financing (assuming he has the necessary cash). However, in this situation, the seller would not be able to force the buyer to purchase.
For this reason, a suspensive condition must always state for whose benefit it has been inserted.
On the other hand, if the event set out as a suspensive condition does not occur because of the misconduct of one of the parties, the party at fault may be penalised by the obligation to perform the contract of sale or the payment of damages.
This would be the case, for example, where a condition precedent requires planning permission to be obtained, but the purchaser fails to submit the planning application in order to frustrate the condition.
Conditions precedent: Prohibitions
The use of suspensive conditions in a compromis is not entirely unrestricted. Not every uncertain future event can be used as a suspensive condition.
There are a number of prohibitions.
For example, a condition may not be unlawful, contrary to good morals or impossible (an event that objectively can never occur).
Furthermore, it is not possible to include as a suspensive condition in a compromis a condition of validity that is essential to the existence of the contract of sale, such as the consent of one of the parties.
For example: if a flat is owned by two different people, it is not possible for one of the two owners to sign a provisional sale agreement subject to the condition precedent of obtaining the consent of the second. This is because the provisional sale agreement is already a sale in itself, and only the effects of the sale are delayed until the notarial deed is signed. The compromis must therefore contain all the essential conditions of the sale: the consent of all parties (vendor and purchaser), the description of the property sold and the price. Without the consent of one of the parties, the compromis has no legal existence.
Similarly, if one of the owners is a minor or is subject to a protective regime for incapacitated adults (e.g. guardianship), it will be necessary to obtain the authorisation of the guardianship judge in order to obtain valid consent from this protected person. Similarly, it will not be possible to make obtaining the authorisation of the guardianship judge a condition precedent in a compromise agreement, as this authorisation is inherent in the consent of the protected person. Without this authorisation, there is no consent and therefore no compromise.
Similarly, when the sale relates to a property owned by one of the spouses and constituting the family home, the spouse's consent (article 215al3 of the French Civil Code) must be obtained as soon as the preliminary sale agreement is signed, failing which it will be null and void, and cannot be made a condition precedent.
Potestative conditions precedent
A suspensive condition cannot be potestative, otherwise the agreement would be null and void. A potestative condition is one in which the occurrence of the future event (on which performance of the contract depends) depends on the will of one of the parties. For example: a buyer who agrees to buy a flat on condition that he decides to move to the town where the flat is located. This condition is potestative, as the purchaser is free to decide not to move and therefore not to buy.
Such a condition is tantamount to the purchaser agreeing to buy on condition that he or she decides to buy. In itself, there is no real commitment, which is why the courts annul such agreements.
However, doctrine and case law have distinguished between two types of potestative conditions:
- purely potestative conditions: where the event depends entirely on the will of one of the parties to the contract. Agreements with such conditions are considered void.
- conditions that are merely potestative: where the event depends partly on the will of one of the parties and partly on an event outside that party's control. These conditions are generally validated by case law. For example, the condition precedent that the purchaser must move to the town where the property is located.
A condition that would allow one of the parties arbitrarily not to conclude the final sale renders the compromis ineffective.