I recently sold a home in Brightwood Trails and the builder didn't ask for a Due Diligence fee. I feel lucky for that as both buyers and sellers seem to think that Due Diligence fees are negotiating tools to hit each over the head with.
Release Date: 08/30/2016
John Wait, Martin & Gifford, PLLC
QUESTION: During the due diligence period, my seller received a Form 390-T signed by the buyer stating that the buyer would receive both the earnest money deposit and the due diligence fee on termination. My client disagreed with the due diligence fee portion of the buyer’s 390-T, and responded by sending the buyer a revised 390-T signed by the seller stating that the buyer would only receive the earnest money deposit on termination.
It seems like the parties both agree as to termination and who gets the earnest money, and I just received another offer. Is the contract terminated? Do I need to advise my client to seek legal counsel before he signs the new offer?
ANSWER: We don’t believe the contract is terminated yet based on your facts. Paragraph 6 of Form 390-T states: “This Termination of Contract and Release shall be effective on the date that it has been signed by all of the Parties.” Even though both parties have signed the same form, they disagree about the terms on which they will agree to terminate the contract. This means that both forms are merely an offer from each side to terminate, and unless one of them signs the other’s form, then the offer remains unaccepted.
Although paragraph 5 of Form 390-T only addresses disbursement of the EMD, the buyer has modified it to provide for a refund of the due diligence fee as well. That’s okay, but unless and until the parties are on the same page regarding all terms of their agreement to terminate, their contract hasn’t been effectively terminated in our view.
You might want to inform the buyer’s agent that the buyer has no right to a refund of the due diligence fee absent a breach of the contract by your client; and if they continue to delay termination, they will risk losing their earnest money deposit as well. As for your client, Standard of Practice 1-7 requires you to advise them to seek legal advice before accepting the second offer, unless the acceptance of the second offer is contingent on the termination of the existing contract.
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