If you haven’t signed a contract, then you may think that a contract begins with the day when it is signed by the involved parties. But this is not necessarily the case every time. To evaluate the difference between a contract and signing a contract coming into effect, you need to understand two key terms: “execution date” and “effective date”.
Here’s an explanation of both the terms and what they mean under legal agreements and contracts of your business and websites no matter if the types of those agreements are:
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In essence: What is the execution date of a contract?
“What is an execution date” of a contract is a question often asked by contractors who have been a part of the contract to be sure whether it complies with the legal requirements. The day when parties involved in a contract sign the contract is said to be the date of execution. It’s the time when parties agree to comply with the terms and conditions of the contract. Although, it is not the day when the contract comes into effect. Moreover, an effective date can be a date in the future or the past.
Effective Date in a contract
Every contract comes with specific requirements that the signing parties have to meet. Possibly, one of them needs to have more authority to keep up with these requirements. For instance, if you want to make an additional room at the back of your house, then you would be required to have a contract with the contractor that describes the work to be done and the amount you would pay for it after a specific date.
After signing the contract, the contractor must have the additional authority to delegate the tasks to other specialists such as plumbers and electricians but the contract will remain between the two of you – the signing parties.
When these kinds of contracts are signed, it’s crucial to know about the beginning dates of the obligations. In general, an effective date depicts the beginning of an obligation on both parties. In the above example, until both parties agree on the terms and conditions of the contract, the contractor would bear no obligation to begin constructing your additional space. You would like to have a date of beginning and finishing of the work along with the scope of work in the contract.
In the case of contracts, where two or more parties are involved, the contract will become enforceable after the signature of the last participant. Until that, there’s no obligation on any party to act accordingly.
Examples of effective dates
Effective dates are an essential part of the contracts.
In real estate sales contracts, generally, there are a couple of dates that show the date of purchase and the date of acceptance from the seller. Until the offer has been accepted, there would be no sale, and the contract would become effective after the acceptance date.
However, if the user downloads an application multiple times, the effective date technically would be different for every download.
The Effective date of a contract vs. Execution date
In most scenarios, the execution date takes place before the effective date of a contract. In such cases, the date of signing the contract by the parties is different from the day and date the contract becomes effective.
For instance, if you are willing to move to a new apartment, possibly you can sign the residential lease before you move to the place. Oftentimes, the tenants and the landlords sign the lease agreement weeks or months in advance. This officially means that you can sign the lease agreement without being bound into the lease terms and can move later into your rental apartment until the effective date comes. In most lease agreements, the terms come into effect on the first day you move to your apartment.
After you sign the lease agreement in advance before you move to the apartment, you are not responsible to pay rent or the bills, keep the unit clean, or do anything unless the effective date of the lease officially arrives. This can also be taken as if you are not allowed to live and use the space until the lease date becomes valid.
As mentioned above, the contract would not become effective until the involved parties sign the contract but it will not be considered valid until the parties sign it. For instance, the effective date according to the contract is August 30th but today is September 3rd and the necessary parties involved have not signed the contract, the contract would not be considered valid.
Based on the type and the reason for your contract, the execution date and effective date of a contract can be the same. Determine the concerns of the parties and read carefully the terms and clauses your contract holds and identify when it exactly becomes effective.
It is also important to note that an effective date can be written in different ways in a contract. It can be stated explicitly and can be a fixed date. Oftentimes, the contracts do not start functioning on the fixed date but on a conditional date instead. If a contract becomes effective after certain conditions like issuance of a license or the documents filed to the state, then it would be considered as a conditional effective date.
Sum it up: What is an effective date and the commence date?
The day on which the activities mentioned in the contract are commenced is known as a commence date. It is another term used for an effective date most of the time. While the term effective date is used most often and recommended in legally binding contracts. However, the commence date is widely used in lease agreements and residential contracts.
Read the document thoroughly when you sign your contract next time along with other parties. Now that you comprehend the difference between the effective and execution date of a contract, determine the date when the contract comes into play.
If you miss the time and date when the contract becomes effective and you fail to meet the required obligations at the time, the parties involved in the contract can sue you for not complying and breaching the contract rules. For this reason, you must note the effective date to avoid any legal actions that your co-parties may take against you.
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