What Is Date Certain?
A date certain is the exact date by which a specified action must occur, according to a particular contract. The date certain is an important piece of information because it is legally binding on the parties involved.
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.
- A date certain is a legally binding date specified in a contract.
- Failure to abide by the date certain entitles the injured party to damages and other legal remedies.
- Date certain clauses are common contractual features in financial products or economic transactions, such as the expiration date of an options contract or starting date of a lease.
Understanding Date Certain
Often, the parties to a contract need to know the exact date on or by which the terms of the contract will be completed. This date, known as the date certain, is an important part of any contract because it permits the parties to objectively verify whether the terms of the contract have been upheld.
A common example of a date certain contract is a lease agreement between a tenant and a landlord. Lease agreements will have a starting date and 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.
Date certain features are embedded in standardized derivatives contracts like options and futures, which expire at a given date and time. Because these clauses are considered to be legally binding, failure to perform by the date certain will entitle the injured party to damages or other forms of legal recourse. In the case of trading that takes place on an exchange, these failures would likely be remedied by the exchange or clearing house being utilized. In the case of transactions occurring strictly between private parties, the dispute may be resolved in mediation or through the courts.
Real World Example of a Date Certain
In American options markets, the third Friday of each month is often used as the date certain at which the options expire. However, different options markets will have different customs in this regard. In European-style options, the expiration date is the only time when an option can be exercised. In this sense, the date certain for a European-style option is very clear.
American-style options, on the other hand, are a bit more vague. In their case, the option holder can elect to exercise their contract at any time between when the option is purchased and when its expiration date occurs. Nevertheless, the expiration date is a date certain that establishes the last possible opportunity for the option holder to exercise the option.
In some rare cases, a date certain may not exist. For example, Russian-style options, which are seldom traded in practice, have no expiration date at all. Instead, the option holder can wait indefinitely before electing to exercise the option.