The Definition of a Contingency Agreement

The definition of a contingency agreement is any contract that depends on one or more events that may or may not take place. If the occurrence(s) happens, the parties have a binding contract. In the event the expected activity does not occur as specified in the agreement, the contract becomes invalid. Some of the most common contingency agreements include contingency fees, real estate contingency and construction contingency. TypesMany lawyers take on certain cases on a "contingency" basis. This means the attorney does not charge any money upfront, but receives a percentage of the proceeds if he settles the case or wins in litigation. Often, the fee depends on the amount recovered. Some jurisdictions do not allow contingency fee agreements for divorce or criminal cases.In real estate contracts, a buyer may sign a contract to purchase another property at an agreed upon price, by a certain date and add a financing contingency. This allows the buyer to follow through on the purchase only if she can obtain the desired mortgage at certain terms. Other real estate contingencies include appraisal, inspection and surveys.In the case of a construction agreement, a homeowner may only have an obligation to follow through on certain repairs if the insurance company will pay for the items at a cost that the contractor and insured agrees to as necessary to complete the repairs. Many construction contracts have contingencies for handling additional costs or change orders.SignificanceContingency agreements allow you to protect your interests and help you to make good decisions with less risk. The contract 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 has to pay the lawyer who represents the case. In turn, a contingency fee agreement enables the attorney to make a living and removes any incentive to take on the financial support for frivolous cases that end up in losses.FeaturesThe provisions contained in contingency agreements depend on the type of contract, state laws and the interest of the parties to the agreement. Contingency clauses should clearly outline the exceptions stated as clearly as possible. For example, a contingency fee agreement may state the attorney's fee as 30 percent of all funds recovered, or 33 percent after expenses. A real estate buyer's financing contingency may state the purchase must obtain a mortgage at five percent interest.Time FrameA real estate buyer may add a financing contingency that allows 45 days to obtain a mortgage. The seller must consider the ramifications of tying up the property for that duration and may counter with 30 days. Some real estate contracts, such as the California Associations of Realtor's standard agreement, may have time frames built into various contingencies that need modification. A common contingency provision for public construction contracts includes financial rewards/penalties for meeting specific time lines for completing the work.Expert InsightWhen it comes to contingency fee agreements, the website Free Advice.com suggests to focus the contract around the figure the plaintiff can reasonably anticipate to recover after payment of the fee as oppose to the percentage of the contingency fee. For instance, receiving $150,000 and paying the attorney a 40 percent contingency fee nets you $90,000. If you recover $75,000 and pay a 20 percent contingency fee, you receive $60,000.