Certain legal challenges seem to come in waves for me, and lately one of those waves involves difficulties encountered in the termination of the Cincinnati Area Board of Realtors Purchase Contract, either for failure of the inspection contingency or the financing contingency.
Three guideposts should guide real estate practitioners, buyers and sellers in the exercise of contingencies in a purchase contract:
Read the contract.
Just because a contract is contingent upon the satisfactory outcome of a a loan application or a house inspection does not mean that termination is automatic just because the buyer says it is so.
Follow the steps for termination set forth in the Contract.
The Contract many times lays out a specific procedure for contract termination. That procedure should be followed.
Get it in writing.
As we address here, the statute of frauds requires the contract and every amendment and termination thereof to be in writing. Stating it most simply, if it in’t in writing, it did not happen.
As an example, the Cincinnati Area Board or Realtors Purchase Contract provides a procedure for termination of a contract for the failure of an inspection contingency:
If Buyer is not satisfied with the condition of the Real Estate, as revealed by the inspection(s) and desires to terminate this Contract, Buyer shall provide written notification to Listing Firm or Seller that Buyer is exercising Buyer’s right to terminate this Contract within the Inspection Period, and this Contract shall be terminated.
That seems really simple, but the Cincinnati Area Board of Realtors also has a series of supplemental forms for use in residential real estate transactions. Two of those are:
- Release from Contract to Purchase. This form is a supplemental agreement between a buyer and a seller to terminate a contract.
- Notice of Termination of the Contract to Purchase. This document is a unilateral (i.e., just a notice signed by one party to the other; it does not require a counter signature).
Seller refuses to acknowledge an “offer” to terminate.
I recently experienced a situation in which the buyer signed and tendered a Release from Contract to Purchase to the Seller for the Seller to sign within the inspection contingency period. The seller claimed that that form did not constitute sufficient notice of the failure of the inspection contingency pursuant to the language set forth above and thus it was merely an “offer” from the buyer to the seller to terminate the contact.
The seller reasoned that because both (i) the buyer failed to notify the seller of the failure of the inspection contingency pursuant to the contract requirements and (ii) the seller refused the tendered “offer” to terminate, that the buyer was still bound to the contract. Further, since the inspection period had since lapsed, it was now too late to provide such notice, the seller claimed.
What we did in that circumstance was to supplement the submittal to the seller with a termination under the financing contingency, and eventually the seller conceded that the contract had been terminated and returned the buyer’s earnest money.
Seller refuses to schedule inspection.
In another recent dust-up between a buyer and a seller, the seller refused to schedule an inspection of the property pursuant to the inspection contingency. In this instance, the buyer attempted to so schedule using the automated showing system, and the seller simply would not permit or acknowledge the request.
In that circumstance, the buyer sent a termination to the seller, and we await his response. But what is a buyer to do when the seller refuses to allow access for an inspection? Clearly, the courts will permit the buyer to terminate either pursuant to the inspection contingency or because the seller has breached the contract by refusing to allow the inspection.
So, even though it should seem to be a clear right of the buyer to terminate the contract, the form that that communication to the seller takes informing him of the termination could well impact the substance of whether the termination was effective.