Contingency Clause


DEFINITION of 'Contingency Clause'

A contract provision that requires a specific event or action to take place in order for the contract to be considered valid. If the party that is to fulfill the requirements of the contingency clause is unable to do so, the other party is released from its obligations. A contingency clause can be considered a type of escape clause for those involved in the contract. It allows one party to cancel a deal if certain requirements are not met, though the party benefiting from the clause has to right to waive it.

BREAKING DOWN 'Contingency Clause'

 A contingency clause can be inserted into a contract to benefit either party. Courts often require a good faith effort in contracts that contain these clauses. For example, a contingency clause in a real estate transaction may require the buyer to obtain financing before the seller transfers the deed. 

Paying close attention to the wording of a contingency clause is an important step in contract review, as a loosely worded clause may provide either party too much latitude in determining whether the terms of a contact are being properly executed. A contingency clause should clearly outline what the condition is, how the condition is to be fulfilled and which party is responsible for fulfilling it. Additionally, the clause should provide a timeframe, and what happens if the condition is not met.

  1. Contract Logistics

    The outsourcing of resource management tasks to a third-party ...
  2. Locally-Capped Contract

    A type of embedded option found in structured investment products, ...
  3. Look-Alike Contracts

    A financial product, such as a swap or an option, that is traded ...
  4. Uberrimae Fidei Contract

    A legal agreement requiring the highest standard good faith. ...
  5. Void Contract

    A formal agreement that is illegitimate and unenforceable from ...
  6. Voidable Contract

    A formal agreement between two parties that may be rendered unenforceable ...
Related Articles
  1. Insurance

    Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own.
  2. Insurance

    Insurance: Avoiding The Modified Endowment Contract Trap

    Congress has placed limits on the amount of money that can be put into life insurance policies - what can you do to counteract this?
  3. Home & Auto

    Home Sale Contingencies: What Buyers And Sellers Need To Know

    Home sale contingencies protect buyers who want to sell one home before purchasing another. Find out what buyers and sellers need to know about these contractual conditions.
  4. Home & Auto

    Buying A House Sight Unseen: Good Deal Or Bad Mistake?

    There are significant risks that need to be acknowledged before buying a home without viewing it in person.
  5. Home & Auto

    Contingency Clauses In Home Purchase Contracts

    Here, we introduce widely used contingency clauses in home purchase contracts and how they can benefit both Buyers and Sellers.
  6. Personal Finance

    6 Largest Government Contractors

    These corporations make a lot of money off of the federal government.
  7. Stock Analysis

    The 5 Best Alternatives to Zillow & Trulia

    Understand the online real estate industry and how Zillow and Trulia are industry leaders. Learn about alternatives to Zillow and Trulia.
  8. Investing

    Costs New Investors in Real Estate Do Not Consider

    As lucrative as real estate investment can be, there are a multitude of costs that new real estate investors must consider.
  9. Investing Basics

    How to Find Your First Investment Property

    Investing in real estate can be a lucrative income source, but purchasing the wrong property can lead to big losses.
  10. Investing

    Pros and Cons of Buying a Foreclosed Home

    What are the benefits and drawbacks of purchasing a foreclosed home?
  1. How do nominal interest rates in finance differ from the nominal rate of interest ...

    Despite being incredibly similar in title, a financial instrument's nominal interest rate is something very different than ... Read Full Answer >>
  2. What is the goal of real estate wholesaling?

    Real estate wholesaling is similar to flipping except that the time frame is much shorter and no repairs are made to the ... Read Full Answer >>
  3. How is market value determined in the real estate market?

    Anyone who has ever tried to purchase or sell a home has probably heard a lot about the property's fair market value, or ... Read Full Answer >>
  4. What is the difference between adjusted and regular funds from operations?

    While regular funds from operations measures the cash flow generated by the operations of a real estate investment trust ... Read Full Answer >>
  5. What are examples of typical leasehold improvements?

    Typical leasehold improvements include partitioning a large, open space into smaller, more structured areas such as dressing ... Read Full Answer >>
  6. How much of the global economy is comprised of the real estate sector?

    The commercial and residential real estate industry generated an estimated $3 trillion in 2014, with some 35% of sector revenue ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!