Reinier advises national and international companies
reinier.russell@russell.nl +31 20 301 55 55Parties may contract under a condition. This condition is a future uncertain event. This can work both ways: The agreement enters into force by the fulfilment of the conditions or the agreement can be ended due to the fulfilment. It is important to consider which conditions are chosen when drawing up the contract and when they can be invoked, by which party, and within what time limit.
In the Netherlands, parties have great freedom of contract. Thus, the parties can also contract under (suspensive or resolutive) conditions. What does this mean and what do you have to look out for?
Contracting under conditions means that the operation of an agreement depends on a ‘future uncertain event’. That is also referred to as making a ‘reservation’. This allows parties to avoid being unconditionally bound by the agreement if a future event proves to be disadvantageous for (one of) the parties. In that case, therefore, no mutual consent to dissolve the agreement is needed.
There are two different types of conditions:
The contract between the parties will only enter into force once the agreed condition has been fulfilled. As a result, the parties are not yet bound by any obligations under the agreement.
Example: The agreement will not enter into force until the purchasing party has secured the financing, think, for instance, of a financing reservation in a sales agreement. One could also think of subsidies that may or may not be granted or obtaining the necessary permits.
If the condition does not enter into force, the consequences of the agreement will not enter into force either. If services have already been provided, for example in the form of advances paid or preparatory work, they may be recovered on the basis of undue payment or reversed.
A resolutive condition is an arrangement between the parties that an agreement will end in the event of certain circumstances. Example: the contract can be terminated when a licence for use of a catering establishment is withdrawn.
When the resolutive condition has entered into force, the contracting party that has already performed is obliged – as far as possible – to reverse this. If this is not possible, it shall become a payment for the value of the services provided. However, this does not apply to long-term agreements.
Parties may have agreed that the agreement will end (automatically) by way of law if the condition has arisen. In that case no further act is required. Nevertheless, it is always wise to inform the contracting party that the resolutive condition has arisen.
If the parties have agreed that one of them can dissolve the agreement when the condition arises, it is important that one of the parties states and proves that a resolutive condition exists and is fulfilled. An express appeal must therefore be made that the condition has arisen and also that it has arisen within the agreed time limit.
If a contracting party prevents the suspensive condition from being met, the court may rule that it has nevertheless been met. The agreement will then still enter into force. This often includes approval or financing conditions. For example, an agreement that can only be concluded with the approval of the Works Council requires a best efforts obligation. If there is a (deliberate) failure to inform the Works Council or ask its approval, the condition can still be met and the agreement shall enter into force.
Please note, the non-fulfilment of the suspensive condition that is not (directly) caused by the other contracting party is excluded from this kind of arrangement. Then there has been another cause that has prevented the condition from being fulfilled.
This also applies the other way round: if a contracting party brings about the resolutive condition or has brought about it out of its own interest the condition may still be regarded as not fulfilled under certain circumstances. The contracting party may then not invoke the resolutive condition that has been fulfilled and the agreement continues to exist.
To both conditions applies that, under certain circumstances, not doing anything may also lead to the conclusion that the prevention or fulfilment of the condition has been achieved. If you do not have a licence because you have not applied for it, you cannot, of course, invoke the lack of a licence. In practice, this means that the contracting party for which the condition is included is obliged to use its best efforts to ensure that the suspensive condition is met or the resolutive condition does not take effect.
Would you like us to draft a suspensive or resolutive condition? Would you like to learn more about contracting under conditions? Please contact us:
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