How to Properly Terminate a Contract

When purchasing clients sign up new real estate deals, optimism is high and all parties involved are excited about the new transaction. Unfortunately, during the initial inspection/due diligence period, sometimes it is necessary to terminate the deal and move on. When this happens, it is very important that the client and the attorney representing the client properly terminate the purchase contract for the client to receive a full refund of its deposit.

The process for properly terminating a contract is broken down into a few, easy steps:

1. Calendar the deadline for termination
2. Determine the notice process for sending written termination
3. Identify the appropriate parties and addresses for sending the termination
4. Prepare the termination and send prior to the deadline

Every contract is different, so it is vital to read the contract and understand the termination rights the Buyer has and how to properly exercise such termination rights. Customarily, the Buyer will have until the expiration of the inspection/due diligence period to be able to terminate the contract for any reason and receive a return of his/her deposit. Assuming this is the case, it is critical that the appropriate steps are taken to provide the Seller with written notice of the termination. First, identify the deadline for terminating the contract and make sure such date is calendared with multiple reminders. It is highly recommended to document at the beginning of the transaction the exact deadline for termination and the applicable notice addresses and requirements. This will save a possible disaster later in the deal if these details are overlooked or forgotten. Next, you must determine the actual notice process allowed under the contract. Email of course is the simplest and most efficient way, but sometimes notice clauses in contracts (i) do not allow for email notice, (ii) do not allow for email notice for termination, or (iii) require a second form of notice be sent simultaneously with the email notice (such as certified mail or overnight delivery). To err on the side of caution, many times on behalf of our clients we send official written notice of termination to Seller by two forms of notice and ask for confirmation of receipt of same. Third, be sure to also send the notice to the correct parties and notice addresses provided for in the contract, as well as provide copies to the parties as detailed in the contract (such as to Seller’s attorney and/or real estate agent). Finally, after you have followed the first three steps, the actual written termination can be prepared and sent timely to the Seller before the expiration of the inspection/due diligence period.

Overall, please be sure to understand your contract and not make the common mistake to forget about the specifics of the termination and notice requirements of the contract. This could lead to either a faulty/invalid notice or late notice being provided. The consequences could result in the Buyer’s deposit becoming nonrefundable and leaving the Buyer with no way of getting out of the deal with their deposit in hand.  

If you are currently under contract or contemplating going under contract for a property, have any questions, want to discuss any of the above, or would like to engage a real estate attorney, please do not hesitate to contact me.