April 22nd, 2020 at 1:29 pm

Question: In last week’s Legal Tip, you provided guidance for a listing agent dealing with a transaction involving a buyer who recently removed all his contingencies, but then cancelled. In his Cancellation of Contract (CC), the buyer stated that he was cancelling “due to unforeseen COVID-19 pandemic circumstances,” and requested the return of his entire deposit. I am a buyer’s agent for a buyer who also recently removed all his contingencies. He was just about to submit the exact same CC form to his seller, but he now realizes that the seller is unlikely to agree. Do you have any thoughts on how he should complete the CC? 

Answer: Yes. As a preliminary matter, when you are the buyer’s agent in this type of situation, you should be careful not to say anything that the buyer can later use against you. Here are, however, some thoughts that a buyer may want to consider before submitting a “due to COVID-19” cancellation:

  1. Consider a Mutual Cancellation: A buyer may want to consider checking paragraph 1.F. of the CC for a mutually-agreed cancellation. To cancel instead under paragraph 1.G. “due to COVID-19 circumstances” can potentially be insulting to sellers who are dealing with their own COVID-19 concerns. A seller might also read between the lines. For the buyer to say that he is cancelling “due to COVID-19 circumstances” could easily be interpreted to mean that the buyer is actually not sick and has not lost his job or income, because he would have said so if that were the case.
  2. Submit an Explanation: If the buyer believes that he has the right to cancel under a force majeure theory, he should discuss the matter with his own attorney. The buyer or buyer’s attorney may want to submit an explanation of the buyer’s circumstances for the seller’s consideration. Otherwise, for a buyer to just say that he is cancelling “due to COVID-19 circumstances” is unlikely to be enough to get out of a contract. The law concerning force majeure will generally require the buyer to show how COVID-19 has made it impossible or impracticable for the buyer to perform, despite his reasonable efforts.
  3. Consider a Good Faith Settlement: A buyer who is cancelling after removal of all contingencies may want to consider offering a sum of money to the seller in good faith and in exchange for the seller’s agreement to return the remaining funds to the buyer. A typical seller would, at a minimum, want to be reimbursed for PITI payments and other housing expenses incurred as a result of the buyer’s failure to perform.
  4. Deal Fairly With the Seller: Buyers who have removed all their contingencies, yet demand their entire deposit back, must take responsibility for the possibility that they may have just squandered away any goodwill feelings their sellers may have had for them. Additionally, there are only a limited number of times that a buyer can go back and forth with a seller to negotiate this type of cancellation before the seller gets fed up and decides to hire an attorney to handle the dispute.
  5. Invite the Seller to Mediation: A buyer and buyer’s attorney may want to invite the seller to mediation to resolve the deposit dispute, as provided under the terms of the RPA.
  6. Other Considerations: Every real estate transaction is unique. There may be other things for a buyer to consider, depending on the facts and circumstances of any given situation.
Copyright© 2020 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of April 20, 2020. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.

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