Often there will be more than one purchaser interested in a property. There are ways to commit interested purchasers where a contract is already in place. But, the process has to be done properly so you do not commit your vendors to sell to more than one party!
Back Up Offers
A back up offer can be signed by both the vendor and a backup purchaser if there is already a live contract in place provided it is still conditional. Naturally, the vendors want the most favourable deal or other options should the initial contract fall through. This may not necessarily be the offer that is for the highest price but may be the offer that has the least conditions. Once the vendors accept a particular offer, one contract can be accepted and signed as a backup offer at any stage prior to the first contract becoming unconditional. This will give the backup purchaser the reassurance that they are next in line if the prior contract does not confirm. So the vendor and both purchasers are fully protected, it is important for you to ensure that:
The backup offer contains a clause that clearly states the offer is a backup offer and is subject to the valid cancellation of the prior contract by a certain date.
The vendor is not able to grant any extensions to the purchaser of the prior contract and must cancel the contract as soon as they are legally able to do so.
Generally speaking, the vendor cannot enter into negotiations to vary the prior contract.
The vendor does not have any obligation to advise the prior purchasers that there is a back up offer or the terms of the contract.
Rollover clauses – (also called escape clauses or cash out clauses)
This clause is often used in an contract when there is a long period of time for a particular condition to be satisfied. For example, the contract is conditional on the sale of the purchaser’s current home within six months of the contract. Without a roll-over clause, the property can be off the market for a long period of time until the purchaser manages to sell their property or worse, does not sell their propoerty at the end of the six months. The addition of a roll-over clause gives the vendor the best chance of selling and adds fairness to the transaction. If the original contract is subject to a roll-over clause and a second contract is accepted, then the vendor must give written notice to the purchaser under the original contract giving them a set period of time to confirm the contract unconditional. If the original purchaser cannot confirm by the end of the set period of time, it is cancelled and the second contract comes in to force. Points to remember are:
The second contract must have a clause saying it is subject to the valid cancellation of the prior contract;
No extensions can be granted to the original purchaser and the contract must be cancelled as soon as legally possible.
The second contract does not have to be for a higher price than the original contract, it just needs to be on terms no less favourable to the vendor.
We strongly suggest the wording of any rollover clause or back up clause is reviewed by the solicitors for both parties.
Where done correctly, you can put your vendor in a strong position to obtain a sale. Where done incorrectly back up agreements can have very dire consequences and can result in the property technically being sold twice.
We are always happy to help recommending appropriate clauses or reviewing contracts prior to the parties signing.
Copyright © Cavell Leitch. All rights reserved. Redistribution is only permitted with express written permission. For enquiries please contact us. This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Cavell Leitch for advice specific to your situation.