Have you ever signed a contract and then wondered when the terms of the contract will become enforceable? For many of us, the answer to this question is probably “no”, considering it’s a common misconception that a contract becomes valid the day it’s signed (i.e. your execution date).
In reality, a contract becomes enforceable on its effective date (i.e. the date that your contract becomes official and binding).
In other words, the effective date is when your obligations in the contract begin. It also marks the date you can start to be sued for breach of contract in the event that you fail to meet your contractual commitments.
For instance, if you’re signing a Residential Lease with your landlord, you may sign days (sometimes even weeks or months) in advance of moving into your rental property, but you are not bound by the terms of your lease until the effective date has passed. For most leases, this is the first day of your fixed term or automatic renewal lease agreement and often the day you get the keys and can start moving in.
This means, even if you signed your lease months before moving in, you’re not obligated to keep the unit clean, pay rent, or anything else until your lease actually begins (unless something in your contract specifies otherwise).
Although an effective date can (and often does) fall on the same day as the parties sign the contract, it doesn’t have to be.
When signing your next contract, be sure to take note of your effective date and don’t confuse it with your execution date. Knowing the difference between the two dates is critical to ensuring your contracts are handled properly.