What is a Conditional Contract? – Conditional Sales Contract

There are quite a few people who are aware of the conditional sales agreements, and in case you don’t know, we’ll be covering it right here in this article! It is a kind of arrangement in terms of finances, where for an asset, its buyer can hold the possession, while the right of repossession is still in the seller’s hands. Such arrangements are made when the amount isn’t paid in full to ensure no mishappenings take place.

What is a Conditional Sales Contract?

A conditional sales contract represents a contract that involves the sale of goods where the buyer takes the assets before full payment. Still, the right of goods repossession remains with the seller until the purchase price is paid in full.

When the buyer opts to pay via installments, such agreements come into place. When they’re done with the installments, they can gain complete possession of that very asset. You’ll find a conditional sales lease validating when someone purchases real estate, machinery, and equipment on finance. Here’s all you need to know as well!

What do you need to understand about conditional sales agreements?

As sales of goods occur, a conditional deed is signed, much as a contract where the person who buys the items gets access to them as they pay shortly via installments. But, the absolute ownership is still in the owner’s hands as they are yet to receive the money for their possession. 

An example of a conditional sale agreement would be all sorts of assets that are present physically, are tangible, mainly something like cars, tools, equipment, real estate, and other fixtures. The buyer and seller cumulatively come to a verbal agreement at first, and post the discussion of the terms and conditions; the buyer proceeds with creating a deed. 

The deed includes the conditions, deposits, delivery procedure, and payments, all of this taking place in a professional and written format. It also contains details regarding what will happen if the buyer isn’t capable of paying at the time of payments. 

Criteria of conditional sales agreement contracts

Every conditional sales agreement must focus on the layout that involves the desired details to sign the same finally. Here’s what all should be mentioned in the contract to ensure proper dealing.

  • Type of the property: It should mention the kind of assets, the condition they’re in, and the amounts in which it is being bought or sold.
  • Payment finalization: The down payment should be present in this contract, after which the seller will be granting access to that particular asset. It is also required that the final payment date should be mentioned in the agreement. 
  • Rate of interest: Just as the world functions in installments, the buyer will have to pay the interest rate. Therefore the percentage of the same should also be mentioned. 
  • Delivery schedule: The details involving the final time of delivery should be mentioned under this pointer. 
  • Transfer of names: Once the conditions are described, worked upon, and fulfilled, the contract should mention when the possession names would be transferred. 
  • In case of default: What happens if the buyer fails to fulfill any of the criteria. 
  • Details of repossession: After any issue arrives in any of the situations, how and when the repossession will occur, the components must be present for the same. This will also mention that the seller has the authority to take repossession under the given circumstances. 

What are the benefits of a conditional sales agreement?

When a conditional sales agreement is created due to the payments in installments, the interest return can be attained again via the tax returns. At times, a down payment won’t be that essential, but flexibility and ease in payments, as mentioned in the contract, definitely make things a lot easier. 

Some of the other benefits would be getting access as a buyer before you make the payment in full, which might also create leverage financially when it comes to business. If you have a bad credit score or history by any chance, you would be able to improve it with the financing option provided by the seller. Such benefits are usually only offered to newer businesses. 

A conditional deed is also capable enough to protect the seller if the buyer fails to pay them successfully. Moreover, as we know, the procedure of the title until the installments remain the same, it becomes easier for the seller to gain back access to the house legally; there aren’t any additional costs involved as well, because the procedure is only done prematurely. 

Example of a conditional sales agreement

The ideal mortgage by conditional sale example would be real estate. One of those sectors that require the most financing, involving steps such as pre-approval, appraisal, and then comes the granting of a loan finally. Then, as both parties have come to a mutual conclusion considering the closure date, they can also mention the other details and sign the agreement.

The procedure for cars, motorbikes and other vehicles also stays the same. Several states also permit the buyer to sign the agreement and take the car without finalizing the financing methods. Vehicle registration is still under the seller’s name; who can take it back if the contract conditions aren’t followed. 

Other people involved in renting or selling machinery and equipment also make use of conditional sales agreements. In any case, until and unless the buyer doesn’t pay the amount, the seller has the authority over the asset. If you’re also trying to buy or sell anything like this, make sure you have a conditional sales agreement to secure both your and the latter’s interest.



Igor has been a trader since 2007. Currently, Igor works for several prop trading companies. He is an expert in financial niche, long-term trading, and weekly technical levels. The primary field of Igor's research is the application of machine learning in algorithmic trading. Education: Computer Engineering and Ph.D. in machine learning. Igor regularly publishes trading-related videos on the Fxigor Youtube channel. To contact Igor write on: igor@forex.in.rs

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