When you're in the process of buying a home, you'll often come across the term “forbehold” (contingency) in the købsaftale (purchase agreement). A contingency is an important part of the agreement, which can have a big impact on both buyer and seller.
In this guide, we'll dive into what contingencies are, what types exist, and how they affect your property transaction.
What is a contingency? A contingency (forbehold) in a purchase agreement is a condition that must be met before the deal can be finally completed. It's a way of protecting yourself if certain circumstances need to fall into place before you're ready to complete the deal.
Contingencies can come from both the buyer and the seller, and they can cover different aspects of the deal. Let's take a closer look at the most common types of contingencies.
Common contingencies in a property transaction There are three main types of contingencies often seen in purchase agreements for homes:
- Financing contingency
- Sale contingency
- Building-survey contingency
Let's go through them below.
Financing contingency A financing contingency is probably the most common contingency in a property transaction. It means the purchase is conditional on the buyer being able to obtain the necessary financing to complete the deal.
When you, as the buyer, include a financing contingency, you give yourself the option to withdraw from the deal without financial consequences if you can't get the loan you need to buy the property.
A typical financing contingency might read:
"The purchase is conditional on the buyer being able to obtain a realkreditlån (mortgage credit loan) of [amount] kr. at an interest rate of no more than [percentage]% p.a. with a term of [number] years, no later than [date]."
It's important that the contingency is precisely worded with respect to the loan amount, the maximum interest rate, and the deadline by which the contingency must be resolved.
Sale contingency
A sale contingency is often used by buyers who already own a home that they need to sell first before they can afford to buy the new one. With a sale contingency, the buyer can make sure they don't end up owning two homes at the same time.
A sale contingency might be worded like this:
"The purchase is conditional on the buyer having sold their current home located at [address] for a price of at least [amount] kr., no later than [date]."
As with the financing contingency, it's important to be precise about dates and amounts.
Building-survey contingency
A building-survey contingency (byggeteknisk forbehold) allows the buyer to have a building survey carried out on the property before the deal becomes final. This can be particularly relevant for older properties or if there's suspicion of specific problems.
An example of a building-survey contingency might be:
"The purchase is conditional on a building survey of the property, to be carried out no later than [date], not revealing significant defects or deficiencies whose remedy would cost more than [amount] kr."
Legal effect of a contingency When a contingency has been included in a purchase agreement, it has certain legal consequences that are important to understand:
- The deal isn't final until the contingency is fulfilled or waived.
- If the contingency isn't fulfilled within the set deadline, the party who included the contingency can withdraw from the deal without financial consequences.
- The other party is bound by the agreement for as long as the contingency remains in effect.
It's therefore important that both parties are aware of which contingencies have been included, and by when they must be resolved.
Other types of contingencies
In addition to the three main types of contingencies, there can also be other contingencies in a purchase agreement, depending on the specific situation:
- Lawyer's contingency (advokatforbehold): allows a lawyer to review the agreement before it becomes binding.
- Subdivision contingency (forbehold om udstykning): relevant if part of a plot needs to be subdivided and sold separately.
- Authority-approval contingency (forbehold om myndighedsgodkendelse): may be necessary for certain types of properties or planned changes.
How do you handle contingencies? When you come across contingencies in a purchase agreement, there are some things you should be aware of:
- Read the contingency carefully and make sure you understand its meaning.
- Pay attention to deadlines. Note by when the contingency must be resolved at the latest.
- Work actively to fulfil the contingency if it's yours – for example, by seeking financing or putting your current home up for sale.
- Keep the other party informed about progress or challenges in fulfilling the contingency.
- Consider the consequences if the contingency can't be fulfilled. Be prepared for both scenarios.
Negotiating contingencies Contingencies can often be a subject of negotiation between buyer and seller. As a buyer, you may want to include contingencies to protect yourself, while the seller may want as few contingencies as possible to ensure the deal goes through.
Here are some tips for negotiating contingencies:
- Be realistic. Only include contingencies you genuinely need.
- Be precise in the wording of the contingency.
- Set reasonable deadlines for resolving the contingency.
- Be open to compromise, for example by accepting a shorter deadline for resolving a contingency.
Contingencies in a purchase agreement are an important tool that can give both buyer and seller a degree of security in the transaction process. By understanding the different types of contingencies and their consequences, you can navigate the property transaction better and protect your interests.
Always remember to read contingencies carefully and seek professional advice if you're in doubt about anything. An estate agent or lawyer can help you understand and negotiate contingencies so they fit your specific situation.
Buying a home is a big decision, and contingencies can give you the extra security you need. Use them wisely, and they can help you achieve a more secure property transaction.
Get professional help with your property transaction If you need further help or advice regarding contingencies in the purchase agreement or other aspects of the home purchase, feel free to contact Bomae. Our experienced team is ready to guide you through the process and ensure you get the best possible start to your new home adventure. Let us help you turn your dream home into reality in a safe and secure way.
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