The Definition of a Contingency Agreement

A contingency agreement can protect either party to a contract.
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A contingency agreement is any contract that depends on one or more events that may or may not take place. If the specified events occur, the parties may have a binding contract or the contract will be invalidated depending on the nature of the contingency. Some of the most common contingency agreements include legal fee agreements, real estate sales and construction contracts.

Types of Contingency Contracts

Many lawyers take on certain types of cases on a contingency basis. The attorney does not charge the client any money upfront, but receives a percentage of the proceeds if he settles or wins the case. Often, the fee depends on the amount recovered. Some jurisdictions do not allow contingency fee agreements in divorce or criminal cases. In real estate contracts, for example, a buyer may sign a contract to purchase a property at a specified price by a certain date, and add a financing contingency. This obligates the buyer to complete the purchase only if she can obtain a mortgage on specific terms. In construction agreements, a homeowner may only be obligated to follow through on making repairs if the insurance company agrees to pay for them at an agreed upon cost. Many construction contracts have contingencies for handling additional costs, change orders and time delays.

Purpose of Contingency Agreements

Contingency agreements allow you to protect your interests and can help you to make good decisions without taking on high levels of risk. These contracts offer flexibilities and can give individuals the confidence to make choices they might normally avoid. For example, a person may decide not to pursue justifiable litigation if, win or lose, he will have to pay the lawyer who represents him. In turn, a contingency fee agreement enables the attorney to earn income and allows her to refuse cases that likely will end up in losses.

Read More: Contingency Employment Agreement

Legal Contingency Contracts

The provisions contained in contingency agreements depend on the type of contract, state laws and the interests of the parties to the agreement. The contracts should clearly outline the contingencies as clearly as possible. For example, a contingency fee agreement -- most common in personal injury lawsuits -- may state that the attorney’s fee will be 30 percent of all funds recovered or, alternatively, 33 percent after all expenses of the case are paid.

Real Estate Contracts

A real estate contract for the sale of property may include a financing contingency clause that states the purchaser must be able to obtain a mortgage at no more than 5 percent interest or the contract of sale is not enforceable. Other real estate contingencies include professional appraisals, inspections and surveys.

Construction Contingency Clauses

Many construction or renovation contracts include contingencies that reward the builder for meeting or exceeding completion time limits or, alternatively, punish the contractor for completion delays and cost overruns. Often construction plans will change after work has begun and contingency clauses can provide for which parties will have to pay for such changes or unexpected problems.

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