Kick-Out Clause Explained
A kick-out clause is when there is a sale (or lease) of the buyer’s property contingency, but it allows the seller to market the property. If another buyer makes an offer to purchase the property that the seller wants to accept, the seller gives notice of the offer to the first buyer who must then timely submit an amendment to remove certain contingencies and possibly the Due Diligence Period from the agreement and in some cases pay additional earnest money to the seller.
If the first buyer does not do these things within the pre-agreed time frame, the seller can then “kick-out” the first buyer, terminate that contract, and sell the property to the second buyer. If the buyer meets the pre-agreed requirements of the kick-out clause, then the original contract remains in force subject to the terms of amendment signed by both parties.
If the Kick-Out Clause is Exercised
If the kick-out clause is exercised, the seller must give the buyer written notice that they have received an acceptable offer, and the buyer has the pre-determined amount of time to submit an amendment removing the specified contingencies. Whether all contingencies and the due diligence period get removed or just some of the contingencies and the due diligence period is a matter of negotiation between the parties.
In the event the buyer does not deliver the amendment and the additional earnest money (if referenced in the kick-out clause), the agreement shall terminate, and the buyer shall be entitled to a full refund of the buyer’s earnest money.
A couple of things to remember:
A general Notice form (F816) can be used. Example verbiage for notice:
Per Exhibit (C), paragraph 7, Seller is hereby providing notice that he has received an acceptable offer and is executing the 72-hour kickout clause. Buyer has 72 hours to remove the contingencies set forth in Exhibit (C).
Verbiage for Amendment Removing Contingencies:
Amendment to Agreement (F701) should be used. Example verbiage for amendment:
Buyer agrees to remove the contingencies set forth in Exhibit (C) to include the sale or lease of buyer’s property contingency and the due diligence period.
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