Due Diligence, Right to Inspect and Right to Request Repairs

The GAR Purchase and Sale Agreement, exhibits and amendments allow buyers and sellers to refine the terms of their agreement. The Due Diligence Period (DDP), the Buyers’ Right to Inspect, the Right to Request Repairs (RRR) and the Amendment to Address Concerns are all tools that are used to come to an agreement between the parties.  If the parties cannot agree, they are also tools that allow termination of the contract.
 
Important Points to Remember about how these different tools operate:
 
Due Diligence Period and Amendment to Address Concerns
The Due Diligence Period is located in the main body of the contract on page 1, paragraph 8 and is further explained on pages 3 and 4. The Due Diligence Period can be analogized to an option period.  Within the Due Diligence Period, the buyer may decide to proceed or not proceed with the purchase of the Property for any or no reason.  Any negotiation of repairs that come up in an inspection are done during the Due Diligence Period.  The buyer delivers its repair terms on the Amendment to Address Concerns (ATAC F704). The seller can agree to the terms, can reject the terms or the terms can be negotiated, but there must be agreement prior to the end of the Due Diligence Period or the buyer can find itself buying “as is.”  That is, if there is no agreement between the parties regarding the terms of the ATAC and the buyer has not terminated the agreement, then the buyer has accepted the property “as is.” 
Unilateral Notice To Terminate Purchase and Sale Agreement and Proposed Disbursement of Earnest Money
Alternatively, if the buyer decides not to proceed, either because they have decided against the house or terms of the ATAC cannot be agreed, the Buyer must send a notice to terminate to the seller.  Usually, it is sent using a Unilateral Notice To Terminate Purchase and Sale Agreement and Proposed Disbursement of Earnest Money (F522).  However, some agents play it safe and include a Notice of Termination within the ATAC in the event that the Buyer and Seller do not agree. Although the Buyer has the right to terminate unilaterally, both parties must agree to the disbursement of earnest money.  Usually, if a termination is during the Due diligence period, it’s not an issue and the seller signs off on a return of earnest money to the buyer. However, if the parties cannot agree to disbursement, then the Holder of the earnest money joins the action by sending a “10-Day Letter” to all parties.  A 10-Day Letter is a reasonable interpretation of the contract as to who is to receive the earnest money.  The process is explained in detail in the Purchase and Sale Agreement, page 3 paragraph 7.

Right to Inspect
The Right to Inspect is in the body of the Purchase and Sale Agreement at paragraph 8.  It is a continuing right, meaning that it is in effect even if there is no Due Diligence Period and it is in effect during and after the Due Diligence Period.  So long as Prior Notice is given to the Seller and the hour and frequency of inspections are reasonable, the Seller cannot refuse to allow inspections.  Checking to see if repairs are completed, bringing contractors and estimators and even showing the property to family and friends are all included in the Buyers’ Right to Inspect.
 
Property Sold with Rights to Request Repairs Exhibit
The Property Sold with Right to Request Repairs Exhibit (F273) differs from Due Diligence in that it addresses only defects in the property that have been identified in an inspection.  To comply, the Buyer must present an amendment to request repairs to the seller, as well as the inspector’s report. The Seller then has a Defect Resolution Period.  The time restraints of the exhibit must be adhered to strictly.  If the parties cannot negotiate terms or the Buyer does not accept the property “as is,” the agreement will terminate.
 
The term “Defects” shall mean any infestation by termites, insects or other wood destroying organisms or any condition, building product or item in Property, or portion thereof identified by an Inspector in a written report, which: (1) is in a condition which represents a significant health risk (including lead-based paint and/or lead-based paint hazards) or an imminent risk of injury or damage to persons or property; (2) constitutes a violation of current laws, governmental codes or regulations except if it is “grandfathered” because it was initially installed or constructed prior to or in accordance with all applicable laws, codes or regulations; or (3) is not at the present time in good working order and repair (including damage caused by termites, infiltrating pests, and any other wood destroying organisms), excepting other normal wear and tear.