Words and Phrases - "condition precedent"

Time that entitlement to proceeds arises

6. A "condition precedent" is an event (beyond the direct control of the vendor) that suspends completion of the contract until the condition is met or waived and that could cancel the contract "ab initio" if it is not met or waived. Two examples of conditions precedent are

(a) a condition in a contract for the sale of a hotel business that provides that the transfer of ownership is not to take place until the purchaser obtains a liquor licence, and

(b) a condition in a contract for the sale of land that suspends completion until the purchaser's solicitor has approved the vendor's title to the property.

7. Formal agreements of purchase and sale are frequently explicit as to the date of exchange and, unless circumstances indicate that a specified date was changed or was not the true intent of both parties, the date so specified is presumed to be the date of entitlement. Where the date of exchange is not expressly agreed between the parties, the time that the attributes of ownership pass from the vendor to the purchaser is presumed to be the date of entitlement. Since this test is the same test that is applied to determine the date of acquisition of depreciable property by a purchaser, the comments contained in IT-50R are equally valid in determining a vendor's date of disposition in these cases.

8. Since possession, use and risk are the primary attributes of beneficial ownership, registration of legal title alone is of little significance in determining the date of disposition. Factors that are strong indicators of the passing of ownership include:

(a) physical or constructive possession (refer to IT-50R),

(b) entitlement to income from the property,

(c) assumption of responsibility for insurance coverage, and

(d) commencement of liability for interest on purchaser's debt that forms a part of the sale price.