For many buyers, the timing of a property transaction is not straightforward. It is common for buyers to want to secure their next home before selling their current one. A subject to sale clause is designed to allow this, but it introduces additional complexity and risk for both parties.
While these clauses can provide flexibility, they are often approached with caution by sellers. Understanding how they operate, and the risks involved, is essential before including one in a contract.
This blog explains how subject to sale clauses work, why sellers may hesitate to accept them and how buyers can structure these arrangements more effectively.
How Subject to Sale Clauses Operate
A subject to sale clause makes a contract conditional on the buyer successfully selling another property. If the buyer’s existing property does not sell within the agreed timeframe, the buyer may have the right to terminate the contract.
In practice, this means the seller is agreeing to wait while the buyer attempts to secure a sale elsewhere. During this period, the property may remain off the market or subject to limited marketing, depending on the terms of the agreement.
Subject to sale clauses commonly involve:
- A defined period for the buyer to sell their existing property
- Requirements for the buyer to actively market their property
- Provisions allowing the seller to continue marketing in some cases
- Notice provisions if another buyer expresses interest
Because these clauses delay certainty for the seller, they are often carefully negotiated.
Why Sellers May Be Cautious
From a seller’s perspective, a subject to sale clause introduces uncertainty. The outcome of the transaction depends on factors outside their control, including the buyer’s ability to sell their own property.
Sellers may be concerned about losing time in the market, particularly if property conditions are changing. If the buyer’s property does not sell, the seller may need to restart the sale process after weeks or months.
There is also the risk that the buyer may not actively pursue a sale or may overprice their property, further delaying progress. For these reasons, sellers often prefer unconditional offers or may impose strict conditions on subject to sale arrangements.
Risks for Buyers
While subject to sale clauses provide flexibility, they also carry risks for buyers. Timing is the most significant factor. If the buyer’s property does not sell within the agreed period, the contract may come to an end.
This can lead to missed opportunities, particularly if the buyer has already committed to moving plans or financing arrangements. There is also the possibility of losing a property that the buyer intended to secure.
Key risks buyers should consider include:
- Their property taking longer than expected to sell
- Market conditions affecting buyer demand or price
- Pressure to reduce the sale price to meet deadlines
- The seller accepting another offer under certain clause conditions
Buyers should carefully assess whether the timeframe is realistic before entering into this type of arrangement.
Structuring a Subject to Sale Clause Effectively
Although subject to sale clauses can be complex, they can be structured in a way that balances flexibility for the buyer with certainty for the seller. Clear drafting and realistic expectations are essential.
Common strategies include:
- Setting a reasonable and clearly defined timeframe for sale
- Including requirements for genuine marketing efforts
- Allowing the seller to continue marketing the property
- Providing a mechanism for the seller to request removal of the condition
One approach often used is a “kick out” clause. This allows the seller to accept another offer, subject to giving the original buyer a short period to proceed unconditionally. This can encourage buyers to move quickly while still providing some initial protection.
Careful structuring helps ensure that both parties understand their rights and obligations.
The Importance of Timing and Preparation
Buyers considering a subject to sale clause should prepare as much as possible before entering into a contract. This includes having their existing property ready for market and obtaining advice on likely sale timeframes.
Pricing strategy is also critical. Overpricing a property can reduce interest and increase the risk of not meeting contractual deadlines. Buyers should seek advice from agents and consider current market conditions when setting expectations.
For sellers, understanding how long they are willing to wait and what level of flexibility they can offer is equally important. Clear communication at the outset can prevent misunderstandings later.
The Role of Legal Advice
Subject to sale clauses require careful drafting to ensure they operate as intended. A property lawyer can review the clause and explain how it affects both parties.
Legal advice can help clarify:
- How termination rights operate if the property does not sell
- What obligations the buyer has to market their property
- How notice provisions should be handled
- Whether the clause creates unintended risks
Early legal involvement allows both parties to negotiate terms that are clear, balanced and enforceable.
Final Thoughts
Subject to sale clauses can provide a pathway for buyers to move forward with a purchase while managing the sale of their existing property. However, they introduce additional uncertainty and must be approached carefully.
By understanding how these clauses work and obtaining legal advice before signing, buyers and sellers can make informed decisions and reduce the risk of complications during the transaction.