DEFINITION of Date Certain
Date certain is a term used to identify the exact date on, or by which, the specified actions of a contract can be reasonably completed. This date is important, as it is generally considered legally binding. Contracts with date certain features carry guarantees that are valuable to investors and so may carry a premium over contracts that lack such features. Date certainty also allows for more precise hedging as expectations for delivery of goods or commodities can be known in advance.
Date certain features are embedded in standardized derivatives contracts such as listed options and futures, which expire at a given date and time. Leases and rental agreements also carry pre-established terms, which may be extended upon mutual agreement of both parties.
BREAKING DOWN Date Certain
Date certainty in contracts establishes a known date on or by which the contract's specifications will be completed. Dates certain make deadlines, expiration dates, and other important timeframes explicit for all parties involved, as well as to external audit and verification. Because these clauses are considered to be legally binding, failure to perform by the guaranteed date (for example, not delivering the physical commodity in a futures contract) will entitle the injured party to some sort of compensation or legal or regulatory recourse.
Examples of Date Certain
As an example, we can look at the listed options market in the United States. The third Friday of each month is an example of a date certain contracts for option expiry, since options (and, in fact, all derivatives) are simply contracts between two parties - here, a buyer and a seller. In a European option, the expiration date is the only time when an option can be exercised. In an American style option, the date certainty is more vague, since the long option holder has the right to exercise his or her contract earlier than the expiration date. Still, the expiration date establishes a maximum time horizon by which assignment of the option will take place if it is in the money.
Another example of a date certain contract is a lease agreement between a tenant and a landlord. Lease agreements will have a starting date as well as a termination date, usually encompassing a 12 month term, sometimes with an option to extend or renew the lease for an additional date certain term. If a tenant fails to move out by the termination date of the lease, they can be evicted and subject to lawsuits.