QUESTION: I just received an Offer from another broker. In the blank line for the name of “Buyer,” he has written the name of an individual and then it says, “or assignee.” My Seller has asked why that clause was added and what is the legal effect of those two words if she accepts the Offer. What should I advise my Seller? Is there any action that I can take to protect the Seller?
ANSWER: Adding “or assignee” after the name of the Buyer in standard Purchase Agreement forms merely sends a signal to the Seller and Seller’s Agent that the named Buyer will not be the actual purchaser (a full assignment) or that unnamed purchasers will be added (a partial assignment) prior to the Close of Escrow.
Aside from letting you know that a full or partial assignment may occur, that language does not change the express language of standard purchase agreements as to how any proposed assignment is to occur. (NOTE: the SFAR San Francisco Purchase Agreement is completely silent on the topic of assignments.) The current CAR Residential Purchase Agreement (“RPA”) specifies in Paragraph 26, that:
“Buyer shall not assign all or any part of Buyer’s interest in this Agreement without first having obtained the separate written consent of Seller to a specific assignee. Such consent shall not be unreasonably withheld. Any total or partial assignment shall not relieve Buyer’s of Buyer’s obligations pursuant to this Agreement unless otherwise agreed to in writing by Seller (CAR Form AOAA).”
The PRDS® Residential Purchase Contract (“REPC”) has an even stronger assignment provision in Paragraph 29G:
This Contract is not assignable without Seller’s prior written consent, which consent shall not be unreasonably withheld. Any proposed assignee shall be identified by Buyer in writing within seven (or □ ___) Days from Acceptance. Seller shall have three (or □ ___) Days from identification of any proposed assignee within which to respond. No assignment, whether total or partial, shall relieve Buyer of Buyer’s obligations pursuant to this Contract unless otherwise agreed in writing. An assignment shall require each assignee, within three (or □ ___) Days of Seller’s consent to the assignment, to execute all transaction documents and perform all obligations imposed on Buyer as if the assignee were the original Buyer.
The “or assignee” clause that Agents often add to offers does not constitute the Seller’s separate written consent; it fails to designate a specific assignee and that clause does not create an actual assignment.
There are several issues that should be of concern to Sellers when there may be an assignment:
First, will the new Buyer(s) (“Assignee”) be able to perform all of the original Buyer’s contractual obligations in a timely fashion and who will be responsible if that does not occur?
Second, will the Assignment be finalized well enough in advance of the Close of Escrow to enable the Assignee to secure financing?
Third, is the Assignment a ruse to enable the original Buyer to avoid contract performance by creating cancellation rights for the Assignee (i.e., delivering the TDS to the Assignee after the assignment thus triggering a new 3 or 5-Day right to rescind)?
Fourth, is the Buyer receiving any compensation for the assignment from the Assignee or anyone else? If that is the case, does it mean that the Seller has undersold the Property?
Finally, if different Agents represent the Buyer and the Assignee, who is entitled to the Buyer’s Agent’s commission and can that issue delay the close of escrow
Although some of these concerns are addressed in the PRDS Contract, most of these issues are not dealt with in the CAR RPA and none of these issues are addressed in the SFAR form. As such, regardless of which Purchase Agreement form was used by the Buyer’s Agent, the best practice is to counter that offer and (a) create specific time frames for securing the Seller’s consent to the assignment to facilitate timely performance of all contractual obligations; (b) ensure that the Seller will be apprised of all relevant information about the assignment before consenting to the assignment; and (c) make sure that the Buyer remains obligated for all contractual requirements, including, but not limited to, resolving any possible dispute regarding which brokerage is to be paid the Buyer’s Agent’s commission.
PRACTICE TIPS FOR SELLER’S AGENT
- If there is any indication that the Buyer may be assigning any or all of the Buyer’s contractual rights to anyone else, warn the Seller of the potential concerns detailed above.
- Recommend that the Seller counter the Buyer’s Offer to clarify the actual timing of the precise steps that must occur before obtaining the Seller’s consent.
- Cut and paste the Seller Counter Offer Language which follows on page four of this Tip into an Addendum to the Seller Counter Offer to better protect the Seller’s interests.
This Weekly Practice Tip is an attorney-client privileged document for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright 2020 Broker Risk Management 01/17/2020
SELLER COUNTER OFFER LANGUAGE
WHEN BUYER SIGNALS THERE MAY BE AN ASSIGNMENT
Buyer shall not assign this Agreement, in whole or in part, without Seller’s prior written consent, which consent shall not be unreasonably withheld. Buyer shall identify any and all proposed new buyers (“Assignee”) before obtaining Seller’s written consent to the assignment. The Parties understand, acknowledge and agree to all of the following terms and conditions regarding any attempted assignment by Buyer:
- Any attempted assignment of Buyer’s interests in the Agreement, whether in whole or in part, is subject to the Assignee first reviewing and signing all documents and agreeing to perform all obligations imposed on Buyer as if the Assignee were the original Buyer in this Agreement. The documents to be reviewed and signed by the Assignee, include, but are not limited to, all contract documents, notices, disclosures, disclaimers, advisories, pamphlets, reports and escrow instructions previously signed by Buyer (collectively referred to as the “prior documents”). At the time that Buyer requests the separate written consent of Seller for the assignment, Buyer shall Deliver to Seller proof that the Assignee has approved and fully signed all of the prior documents.
- Any attempted assignment by Buyer must be made within Days after Acceptance of this Agreement. Any attempted assignment after that time shall be deemed a breach of contract by Buyer unless Seller has agreed, in writing, to extend this time frame. Seller shall have ____ Days after Buyer has identified the Assignee to either consent to the assignment or withhold that consent.
- Any compensation earned by Buyer, Assignee or any other individual or entity involved in this transaction as a result of any attempted assignment of this Agreement must be disclosed, in writing, to Seller prior to obtaining Seller’s separate written consent for the assignment. If that compensation is not disclosed to Seller prior to obtaining Seller’s written consent for the assignment, then Seller, at Seller’s sole discretion, may void Seller’s written consent to assign Buyer’s interest and Buyer will be prohibited from assigning Buyer’s interest to Assignee.
- Upon the Assignee’s assumption of any or all of Buyer’s obligations, Buyer shall not be relieved of liability under this Agreement for the terms and conditions specified herein.
- Neither Seller nor Seller’s Agent shall be responsible for — or obligated to participate in — resolving any disputes regarding any claims for the Buyer’s Agent’s commission. Buyer shall be responsible for resolving any dispute regarding which real estate brokerage company, if any, is to receive the Buyer’s Agent’s commission in the event that Buyer’s Agent is not the Agent for the Assignee. Buyer shall be solely responsible for ensuring that any dispute regarding the Buyer’s Agent’s commission does not delay the Close of Escrow.
- The Assignee shall not be permitted to assign any interests or obligations to any other third party without the prior written consent of the Seller under the same terms and conditions as specified herein.
Seller and Buyer are advised to review any attempted assignment of this Agreement with their own qualified California real estate attorney and/or accountant prior to entering into any Assignment Agreement. Seller’s Broker has not and will not make any representations as to the propriety, legality or tax consequences of any assignment.