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Covenants are unconditional promises contained in contracts, the breach of which entitles a person to damages. Conditions, on the other hand, are contingencies, qualifications, or occurrences upon which an estate or property right (like a fee simple) would be gained or lost. Covenants are indicated by words such as promise, undertake, agree; conditions are indicated by words such as if, when, unless, and provided. Because both are limitations only and do not create obligations, failure of the condition to occur will not entitle either party to damages against the other party.
Conditions may be either precedent or subsequent. A condition precedent must happen or be performed before a right or estate is gained; a condition subsequent causes a right to be lost or an estate to be terminated upon its occurrence.
For example, a lease may contain covenants to repair, or pay taxes, assessments, or rent. If the tenant breaches a covenant, the landlord may sue the tenant for damages. If the lease contains a certain condition and the tenant breaches the condition, then his or her leasehold interest terminates. Thus, a commercial lease often contains a condition in a defeasance clause that the tenant will forfeit his or her lease upon the tenant’s being declared bankrupt or upon illegal use of the premises.
Promises may be both conditions and covenants. For example, the concurrent conditions found in contracts for sale are also covenants. The delivery of the deed by the seller and the payment of the purchase price by the buyer are concurrent conditions; also, they are covenants. Thus, the buyer could sue the defaulting seller for damages only after the buyer met the condition of tendering performance (by placing the purchase money into escrow).
Dearborn Real Estate Education
This "Word of the day" is excerpted from The Language of Real Estate, 6th Edition by John Reilly (published by Dearborn Real Estate Education, 2006 copyright). To purchase the complete book, with over 2800 key terms and definitions, or to browse through Dearborn's hundreds of other professional real estate titles, including Real Estate Technology Guide by Klein, Barnett, Reilly, click here.