Drafting Contract Terms

What a “Term” Really Is

A contract term is not just wording in a schedule.

A properly drafted term creates:

• a clear obligation

• a defined timeline

• a measurable standard

• a known consequence if it is not met

If any one of those elements is missing, the term may be difficult or impossible to enforce.

The 5 Essential Elements of Every Strong Term

Before submitting an offer, every term should clearly answer all five of the following:

1. WHO must act

Be specific.

• Seller

• Buyer

• Buyer’s lawyer

• Seller’s lawyer

• A named contractor or professional

Avoid vague references such as “the parties” when responsibility matters.

2. WHAT must be done

Describe the obligation clearly and narrowly.

• Repairs

• Cleaning

• Replacement

• Documentation

• Payment

• Delivery of proof

If a third party were reading the term later, they should understand exactly what was required.

3. BY WHEN

Every obligation needs a clear deadline.

• Include both date and time

• Tie the timing to known milestones where appropriate (e.g., before possession, prior to completion)

Ambiguous timing is one of the most common drafting errors.

4. HOW satisfaction is proven

A term must explain how completion is determined.
Examples:

• Paid receipt

• Invoice

• Written confirmation from a professional

• Delivery of documentation

• Inspection or confirmation by a specific party

If satisfaction cannot be objectively proven, disputes are likely.

5. WHAT happens if the term is not met

This is often overlooked — and critical.

The term should clearly state:

• whether funds are held back

• where funds are held

• who releases them

• what happens if deadlines are missed

If the consequence is unclear, enforcement becomes difficult.

Common Drafting Mistakes to Avoid

Vague satisfaction language

Examples to avoid:

• “Buyer to be satisfied”

• “Acceptable to the Buyer”

• “To the Buyer’s approval”

Without objective standards, these terms are weak and invite dispute.

Missing or conflicting timelines

• Deposit dates that conflict with acceptance

• Condition expiry dates that don’t align with notice requirements

• Holdbacks that don’t reference when or how they are released (Always discuss Holdbacks with the lender/mortgage rep)

Always cross-check timing against the rest of the contract.

Copy-and-paste clauses

Terms pulled from prior deals often:

• reference the wrong party

• use incorrect dates

• fail to reflect the current transaction’s risks

Every term must be reviewed and adapted before use.

Holdback Terms: Special Caution

Holdback terms require extra care.

Key considerations:

• Holdbacks can be interpreted by lenders as cash-back incentives

• Lender approval may be required

• The property must still appraise at the full purchase price

• Larger holdbacks are often safer when funds are paid directly to the service provider, not the buyer

Agents should discuss holdback terms with their client early and recommend legal review where appropriate.

Buyer vs Seller Perspective Matters

The same issue may be drafted differently depending on representation.

Examples:

• Limiting a seller’s liability to the holdback amount

• Allowing or restricting buyer control over repairs

• Allocating responsibility for overruns

Terms should always reflect who your client is and whose risk is being managed.

When to Recommend Legal Review

Agents are not expected to practice law, but they are expected to recognize risk.

Legal review should be recommended when:

• dollar amounts are significant

• insurance is involved

• timelines extend beyond possession

• liability may exceed a holdback

• lender approval is uncertain

Early legal review often prevents late-stage deal failure.

Broker Expectations

Agents are responsible for understanding the implications of the terms they draft.
Questions should be raised before submission, not after acceptance.