What is a contingency in a contract?

A contingency in a contract is specifically a condition that must be satisfied before the contract is enforceable. This means that certain predetermined events or conditions need to occur for either party to be obligated to fulfill their part of the agreement. For instance, in real estate contracts, common contingencies include the buyer obtaining financing, a satisfactory home inspection, or the sale of a buyer’s current home. Until these conditions are met, the contract may remain open or can be terminated without penalties.

The definition reflects that contingencies are crucial in protecting the interests of the parties involved, allowing them to withdraw from the agreement without legal consequence if the specified conditions are not fulfilled. It functions essentially as a safeguard within the contractual framework that ensures that all parties move forward only under acceptable circumstances.