The GAR Forms include a Sale or Lease of Buyer’s Property Contingency Exhibit that allows the buyer to condition the purchase of a new property on the sale or lease of an existing property. The contingency gives the seller a right to “kick-out” a buyer if the appropriate box on the contingency exhibit is selected and agreed to by the parties.
Kick-Out Clause Explained.
A kick-out clause describes a situation where the seller of a property that is under contract continues to market it for sale to other buyers because the buyer’s purchase is contingent on the sale or lease of other property owned by the buyer. 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. GAR F601
If The Kick Out Clause is Exercised
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 a seller’s market, the seller might insist that all contingencies be removed, turning the sale into an all-cash transaction. (A loan would still be allowed if the contract contemplates a loan.) Conversely, in a buyer’s market, the buyer might insist that all contingencies remain. Note that even in a buyer’s market, it is logical that the seller insist that the Sale or Lease of Buyer’s Property Contingency would be removed if the Kick Out Clause is Exercised.
Note the language of the exhibit. Check the boxes of contingencies that would no longer be a part of the contract. Sellers would prefer that all contingencies be removed at the exercise of a Kick Out and check every box. Buyers would prefer that as many contingencies as possible remain and wouldn’t want any boxes to be checked.
From the Sale or Lease of Buyer’s Property Contingency Exhibit:
7(B) The contingencies and/or Due Diligence Period checked below shall no longer be a part of the Agreement.
Buyers Should Confirm Their Financing and Get Inspections as Quickly as Possible.
Most buyers are reluctant to give up their financing contingency unless they know that they are likely going to be approved for a loan. As a result, buyers who have agreed to a kick-out provision where they may have to give up their financing contingency should try to get confirmation as to their ability to get a loan as soon as possible. Having to give up a due diligence period is even a bigger issue for most buyers since confirming that the property does not contain major defects is possibly the most important thing a buyer can do prior to purchasing. Buyers who have agreed to a kick-out clause should rush to get a professional inspection performed of the property. In this way, they will quickly know the condition of the property if the kick-out clause is exercised and they have to give up their inspection rights.
Weissman, Seth. The Red Book on Real Estate Contracts in Georgia (pp. 731-733). BookBaby. Kindle Edition.
GAR F601 Sale or Lease of Buyer’s Property Contingency Exhibit
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