The Sale or Lease of Property Contingency can be confusing, even to a seasoned professional. There are a lot of moving parts that need to be understood by both parties to properly draft this contingency. Each transaction is unique. The party that holds more power creating the sale or lease contingency really depends
on the market. In a seller’s market, sellers generally control and may make the contingency easy to for the seller to remove. In a buyer’s market, buyers generally control and may be able to avoid including a kick-out clause and make the time period to sell or lease as long as possible.
The GAR Sale or Lease Contingency includes a lot of options for both buyers and sellers, making it flexible in both a sellers’ and a buyers’ market.
1. If the property is not under contract already, the Buyer can be required to have the property listed for a price designed to maximize the likelihood of a sale or lease. If the property is already under contract, the seller will want to require a short time period for its closing.
2. Using a kick out clause, a seller can force the buyer to remove the contingency or even terminate the buyer’s contract if the seller receives another acceptable offer. There is a process in a kick-out clause, discussed below.
3. The seller can continue to market the property while there is a sale or lease contingency in place.
4. The Seller can negotiate to require that all remaining contingencies be removed and have the due diligence period end if the kick out is exercised, effectively making the contract an all-cash transaction.
5. If the buyer’s property was under contract when the contract was bound, but then terminates, the GAR contract allows a seller to terminate the contract.
6. If Buyer does not terminate the Agreement at the time of notice that the buyer’s contract has terminated, the Seller has the right, but not the obligation, to request that Buyer deliver an amendment signed by Buyer to remove all contingencies and Due Diligence Period from the Agreement. If Seller does not exercise this right within three (3) days from Buyer’s notice that Existing Pending Contract has terminated, then Seller’s right to request the amendment on this basis is waived.
1. The buyer can avoid termination via the kick out clause by removing the contingency. However, if the buyer does remove the contingency, the buyer cannot claim a failure of financing because the property didn’t sell. Careful here.
2. The buyer can convert some or all of the earnest money into non-refundable earnest money and keep the kick-out clause in place.
3. The time period for the buyer to close is a negotiated element of the deal. The buyer will want it longer. The Seller will want it shorter.
4. The Buyer can negotiate to leave contingencies other than the Sale or Lease contingency in place when the kick out clause is exercised. If the due diligence period, the financing contingency, any inspection contingency or other contingencies remain in place, the buyer still has protections.
5. 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.
6. If the Existing Pending Contract is terminated and the buyer notifies the seller, Buyer has the right to terminate the Agreement at the same time of the notice without penalty. Meaning the buyer gets the earnest money refunded.
The Process of Exercising the Kick Out Clause If the seller receives a better offer, and the seller exercises the kick-out, the seller notifies the buyer, and the
buyer has a short time period to eliminate the agreed contingencies and the due diligence period from the contract making it an all-cash transaction. If the buyer does not agree to remove the agreed contingencies and the due diligence period, then the seller can terminate the contract and move forward with the better offer.
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. The kick-out clause has been revised so that the parties can negotiate whether fewer than all of the contingencies must be removed if the kick-out is
exercised or all of the contingencies must be removed. Buyers will obviously be pleased with the flexibility the form now provides.
Part 2 next week.
Weissman, Seth. The Red Book on Real Estate Contracts in Georgia (p. 729738). BookBaby. Kindle Edition.
GAR F601 Sale or Lease of Buyer’s Property Exhibit
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