The Timing Element of Notices to Perform

BROKER RISK MANAGEMENT

WEEKLY PRACTICE TIP

The Timing Element of Notices to Perform

Q: I am the Listing Agent and another Broker represents the Buyer. The Purchase Agreement specified that the Buyer was to wire transfer the $110,000 initial deposit into escrow by Wednesday but failed to do so. I prepared a Notice to Perform for the Seller to sign on Thursday. As soon as the Seller sent it back to me, I forwarded it over to the Selling Agent. I did not realize that the Seller had changed the 2-Day Notice period to 1 day.

Friday morning, the Selling Agent contacted me to say the Buyer had put a personal check into escrow for $100,000 and that that should satisfy the Seller. When I informed the Selling Agent that the amount was wrong and that the Buyer had used a personal check rather than the agreed-upon wire transfer, the Selling Agent claimed that the Seller had not sent a proper Notice. The Seller was adamant the money needed to be in escrow quickly and now wants to cancel because the Buyer’s check will not clear for several days. What do I do now?

A: A new Notice to Perform must be immediately prepared and signed by the Seller giving the Buyer 2 days to get the full $110,000 initial deposit wire transferred into escrow. If the 2-Day Notice is signed and sent on Friday, the Buyer would have until midnight on Monday (or Tuesday if Monday is a holiday) to wire the funds. Remember the first day of the 2 days is the next day after it is delivered and Saturdays count, but the second day cannot be a weekend or holiday. Depositing a personal check is not the same as a wire transfer and thus the Buyer is not performing as agreed.

CONTRACTUAL REQUIREMENT:

The Purchase Agreement specifies that a written Notice to Perform signed by the issuing Party (in this case the Seller) must be issued prior to any attempt to cancel (see Paragraph 14E in the C.A.R. Residential Purchase Agreement). The Purchase Agreement form states that the amount of time for the Notice must be “at least 2 (or ____) Days”.

As is true with all other time frames in the Purchase Agreement, a default or pre-set number was included but Buyers and Sellers are given the opportunity to negotiate the length of time for that Notice in the Purchase Agreement by inserting a different number into the blank line. However, whether the Parties agree to use the pre-set 2 days or another number of days in that Agreement, that agreed-upon number is the minimum time frame for the Notice to Perform. If the Notice to Perform does not meet all of the requirements in the Purchase Agreement, then there is a very good argument that the Notice to Perform is not valid.

PROPER NOTICES TO PERFORM:

Both the Notice to Buyer to Perform and the Notice to Seller to Perform forms created by C.A.R. specify directly above the signature lines how much time the receiving Party has to comply with the Notice. The bold print warning in the Notice to Buyer to Perform states:

Although the pre-printed time frame is 2 days, the form allows the issuer to change the number of days to whatever was agreed upon in the Purchase Agreement or the issuer can provide more time – but, as is noted in the parenthesis in the above paragraph the time period for the Notice to Perform cannot be “less than the time specified in the Agreement”.

Not everyone reads everything in pre-printed forms; sadly, several people have not seen the bold print warning. It is unknown whether C.A.R. can be convinced to better emphasize the fact that the time frame cannot be for a shorter period of time than what was agreed to in the Purchase Agreement. Therefore, it is important that Sales Associates receive training on the proper use of that form.

PRACTICE TIPS:

1. CLEAN HANDS DOCTRINE. A basic principle of law is that a person who has acted wrongly, either morally or legally, has “unclean hands” and that person will not be favored in the judicial system when complaining about the actions of someone else. If a Seller believes that a Buyer is not performing their agreed-upon contractual obligations, the Seller must abide by the terms and conditions of that same contract before making any claims against the Buyer. This doctrine is a handy legal and ethical concept when trying to assess various disputes.

2. WHAT DOES THE CONTRACT SAY? Before anyone attempts to discuss whether or not any Party to the Contract is, or is not, performing their contractual obligations, make certain that you first go back and re-read the entire Purchase Contract (not just the Offer, but all fully signed Counters and Addenda) to determine what the Parties actually agreed to do.

3. AVOID CONCLUSIONS OF LAW. Although a Party to the Purchase Agreement may not be performing exactly as agreed, real estate professionals should avoid using legal conclusions such as “Breach of Contract.” The proper terminology is that the Party is “not performing as agreed”.

4. PROPERLY ADVISE CLIENTS. If a Client wants to enforce the time frames of contingencies or enforce other contractual requirements (whether or not they want to cancel the Agreement), the real estate professionals should have the Clients review the Notice to Perform provision of the Purchase Agreement. The Client should be advised to use a proper Notice to Perform (such as the ones created by C.A.R.) and, when transmitting the form, the Client should be warned that they cannot lessen the amount of time for the Notice to Perform. If necessary, highlight the language regarding the time frame in the Notice or take a screen shot of it as shown in this Weekly Tip.

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 C.A.R. in the industry, but rather are intended to suggest good risk management practices.