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Why Your Contract Needs a Contingency Provision

On Behalf of | Mar 18, 2020 | Business Law, Contract Law

There are many reasons why you or your company should consider adding a contingency clause or provision in you contracts. These provisions can be easily overlooked before entering into a binding agreement. However, it should garner more importance since it can be used as a type of “escape clause” for your formal agreements. A contingency clause is a contract condition that requires a specific event or action to take place for the contract to be considered valid. If the events or actions do not satisfy the contingency clause, the parties will be released from the contract’s obligations.

Let’s take a closer look at the composition of a contingency clause and what a proper clause entail. A contingency clause can be inserted into any contract to benefit either party. The courts often necessitate a good faith effort in contracts that include these clauses. One party can cancel a deal if certain requirements are not met, though the party benefiting from the clause usually has the right to waive. The provision must specify an event and / or action to occur for the contract to be considered valid.

Common contingency clauses may be used for the following:

· Licensing Contingency

· Financing Contingency

· Appraisal Contingency

· Compliance Contingency

It’s easy to overlook adding a contingency provision in your agreements. Every detail is important in a contract and contingency clauses may get lost when you’re drafting terms and conditions. It’s recommended to speak with an experienced contract attorney to see if a contingency provision makes sense for your contract. It’s important to always look out for you and your business’s interests and adding or amending a contingency clause to an outdated contract can do just that.

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