BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Use Specific Contract Dates
Q: I am a listing agent in escrow on a home sale with a lengthy escrow. The buyer wanted a long escrow because he would be traveling extensively, but stated he would close sooner if possible. The buyer’s agent wrote in the contract: “Close of escrow to be 90 days or sooner.” Now, buyer’s trip has been cancelled and wants to close after 45 days. But now my seller wants the full 90 days since he is having trouble finding a replacement home. Buyer’s agent is insisting that we close after 45 days because the contract said 90 days “or sooner” and so we have to close when buyer is ready. Do we?
A: In a word: “No.”
This situation highlights the problem of using less than specific dates for contractual performance, contingency removal or close of escrow.
The words “or sooner” do not add anything to the sentence setting the time for close of escrow. In answer to the question, “How much sooner?”, there is no answer short of an addendum agreeing to a shorter period of time. That would be true if the words “or sooner” were not even there.
All those too simple, innocent words have accomplished is to create a misunderstanding on the part of the buyer.
Other examples of imprecise contract language relating to timing of contract events are:
1. “Close of escrow shall be 5 days after seller receives a certificate of occupancy.”
What if the seller never gets the Certificate of Occupancy? What if the house burns down? What if the city/county refuses to issue the certificate? Such a clause has been argued by attorneys to be so important, and so vague, as to render the whole contract void and unenforceable.
2. “Buyer is hereby granted an extension of a minimum of 20 days to remove inspection contingency.”
Here, there is no maximum specified so, theoretically, it is open-ended and subject to the same arguments as above.
3. “Buyer and seller agree that, upon request from buyer, seller will grant buyer an additional 30 days or more to complete the survey and remove the contingency.”
The words “or more” create the same problem. If buyer wants more than 30 days, there is no guidance as to how much more. Again, vague, and subject to confusion, conflict and arguments by attorneys about the enforceability of the contract.
4. “Buyer shall remove the appraisal contingency no more than 20 days after acceptance.”
Just delete the words “no more than” and the meaning is the same.
PRACTICE TIPS:
1. Always use a fixed number of calendar days to set a time for contract performance.
2. Avoid using, and even delete by counter-offer if necessary, words such as “or sooner,” “or more,” “a minimum of,” when creating contract time frames.
3. If buyer and seller wish to change these fixed dates at some time in the future, they always can do so by mutual agreement in an addendum to the purchase agreement – whether or not any of the above words have been used.
4. If a date for contract performance is going to be tagged to a specific event that could, or possibly could not, happen, then always add a “drop dead date,” meaning a date beyond which performance will be required no matter what.
For example: “Buyer and seller agree that, upon request from buyer, seller will grant buyer an additional 30 days or more to complete the survey and remove the contingency, but in any event no later than December 31, 2008.
This brings certainty to the timeframe for performance.
This Weekly Practice Tip is 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.
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