Conditional sale definition

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What is a Conditional Sale?

A conditional sale is an arrangement in which the seller retains title until the buyer meets a predetermined condition, such as sending the seller full payment. This arrangement is most common in real estate transactions, where the buyer makes a series of incremental payments to the seller over a period of time; if the buyer does not complete these payments, the seller can take possession of the property. In the meantime, the buyer can take possession of the property and use the premises. Alternatively, a sale might be conditioned on the buyer acquiring financing, the successful completion of a title search, or the completion of a home inspection.

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Types of Conditional Sale Arrangements

The main types of conditional sale arrangements are as follows:

  • Hire purchase agreements. The buyer takes possession of the asset and pays in installments, but ownership remains with the seller until the final payment is made. This is common for vehicles and equipment.

  • Lease-to-own agreements. The buyer leases the asset with an option or obligation to purchase it after all lease payments have been made. Title transfers at the end of the lease term if conditions are fulfilled.

  • Conditional sales contract. Used primarily in consumer and commercial financing, the buyer pays in installments, and the seller retains title until the contract terms are completed, often including full repayment.

  • Land contracts. In real estate, the seller finances the purchase, and the buyer gains equitable interest but not legal title until all payments are made. The seller retains legal title during the payment period.

  • Vendor financing with title retention. The seller finances the sale of goods or property but retains ownership until certain contractual conditions, usually full payment, are met. Often used in business asset sales.

  • Equipment finance agreements with title conditions. Similar to hire purchase, these involve financing the acquisition of machinery or equipment, where ownership passes after the final installment or upon fulfilling maintenance or usage conditions.

Each type maintains the principle that ownership does not transfer to the buyer until specified conditions are satisfied.