What are General Conditions?
The general conditions set out the standard rules of the contract: payment, default, notices, termination and dispute resolution.
They are prepared for use across many transactions rather than for any particular sale, and they apply unless the parties agree otherwise.
As the default terms, they govern any matter the special conditions do not deal with.
What are Special Conditions?
Special conditions are commonly included in standard-form contracts of sale to supplement or vary the general terms and address matters specific to the particular transaction. They are not confined to sales of land: they appear in sales of businesses, shares and other assets, and in commercial contracts generally.
For example, in a business or asset sale, a special condition may make the sale conditional on the purchaser obtaining finance approval within 21 days, provide a due-diligence period of 14 days, or permit the purchaser early access to the asset before settlement. The High Court has held that a contract made subject to the purchaser obtaining satisfactory finance is valid, even though the purchaser judges what is satisfactory.1
Some standard forms already deal with these matters. In Victoria, the REIV/LIV contract of sale of land builds finance approval into the form itself: the loan section of the particulars of sale and its matching general condition do that work.2 Special conditions are left to matters the form does not cover.
What are Common Special Conditions?
The special conditions in a contract of sale usually come from a short list of familiar needs. Common examples include:
| Special condition | What it does | Example |
|---|---|---|
| Approvals and licences | Makes the sale depend on a third party's approval | A café sale conditional on the transfer of its liquor licence, or on the landlord consenting to the transfer of the shop's lease |
| Due diligence | Gives the purchaser a set period to inspect the books and records, with a right to end the contract if a serious problem appears | A 14-day due-diligence period in a business sale |
| Restraint of trade | Stops the vendor competing with the business being sold | A salon vendor agreeing not to open a competing salon within five kilometres for three years |
| Early access and possession | Allows the purchaser access before settlement and states who bears the risk during that period | Early access to fit out the premises or begin training staff |
Which Conditions Prevail If They Conflict?
Where the general and special conditions can be read together, both apply. If they genuinely conflict, the special condition prevails.3
Courts do not find a conflict lightly. They read the contract as a whole and, wherever the wording allows, treat the two sets of conditions as working together.4 Only if the two cannot stand together does the special condition prevail, because it is the term the parties themselves chose for their transaction.5
One further principle applies throughout: no clause can be read in a way that defeats the main purpose of the contract.6
Why Do Drafting Errors in Special Conditions Lead to Disputes?
Drafting errors in special conditions lead to disputes because the added terms must operate alongside printed terms that the parties did not write. A special condition that is loosely worded may leave it unclear whether it supplements a general condition or varies it.
If that happens, each party can read the clause differently, and the disagreement must be resolved under the principles described above, whether by negotiation or, ultimately, through the contract's dispute resolution process.
For example, a special condition allowing the purchaser to terminate if finance is not approved within 21 days must be read with the printed default and termination provisions. If the drafting does not state how the special condition and those provisions interact, the parties may take different views about when a right to terminate arises.
Why Do Special Conditions Require Careful Review?
Special conditions often contain the key commercial terms of the transaction. When reviewing them, five key aspects can help identify the rights, obligations and risks they create:
- the obligation each special condition creates, and the party required to perform it;
- any time limit attached to a condition, such as a 21-day finance approval period or a 14-day due-diligence period, and what follows if the deadline passes;
- whether the condition is intended to supplement the general conditions or to vary them;
- which party benefits from the condition, and whether that party may waive it; and
- the consequence if a condition is not satisfied, including any right of termination that arises.
Purchasers should confirm that any time limits, such as a finance approval period, are realistic before signing; vendors should confirm that the contract states with equal precision what happens if a condition is not met.