Buyer of Residential Income Property’s Easiest Way to Cancel Sale Without Breaching Contract

After a entering into a residential income property purchase agreement (as set forth in C.A.R. Form RIPA), a buyer retains substantial ability to cancel the agreement without the cancellation being deemed a breach of the agreement.  Smart buyers will want to make sure they understand their cancellation options before they sign the purchase agreement, so here is a quick run down of the easy/ most common ways to get out of the deal without breaching.

Paragraph 18 of the C.A.R. form spells out the parties cancellation rights.  Generally speaking the buyer’s ability to cancel is linked to the buyer’s receipt of various disclosures and to the buyer’s release of certain contingencies.  These are a buyer’s easiest ways out the deal.

Although, not within control of the buyer, the seller’s required disclosures often provide an easy out.  The seller generally has a relatively short window of time to get these disclosures and reports to the buyer, and the deadline is easy to miss.  Unless otherwise specified, the seller will have 7 days after acceptance to deliver to the buyer all necessary reports and disclosures (for example: hazard disclosures, Megan’s Law disclosure, rental agreements, termite disclosure, etc.  – and this is just to name a few). If the seller does not give the buyer the required reports and disclosures, the buyer can issue a notice to perform and if the seller fails to perform within the time specified in the notice to perform the buyer can issue a cancellation.  Additionally, if the seller subsequently provides an amended statutorily required disclosure to the buyer, the buyer has another opportunity to cancel.

The buyer also has various contingencies that he/she/it must agree to release before the seller can enforce the agreement, and the release of these contingencies is completely within the buyer’s control (subject to the buyer’s contractual obligation to act in good faith). These contingencies are usually the inspection contingency, appraisal contingency, and the loan contingency. Unless agreed otherwise, the buyer has 17 days after acceptance of the agreement to either remove these contingencies or cancel the agreement.  So if the buyer cannot get the funding necessary to purchase the property, or the property does not appraise at an acceptable value, or the buyer inspects it and find out it needs substantial repairs – the buyer can cancel the agreement.  This right extends beyond the 17 days, so long as the seller has not exercised his/her/its right to cancel because the buyer did not remove the contingency within the 17-day period. And that is important to keep in mind – if the buyer tries to string the seller along and does not remove the contingencies within 17 days, the seller than has the right to cancel the agreement too (although only after issuing a notice to perform).  However, once the buyer delivers a written removal of all contingencies to the seller, the seller cannot cancel the agreement.  In other words, the buyer not only has substantial ability to cancel the agreement, but once the buyer releases the contingencies, the buyer can effectively prevent the seller from being able to cancel.

If you questions pertaining to an agreement to buy or sell residential income producing property, please feel free to contact us for a consultation.