May 31st, 2016 at 11:18 pm
Answer: The answer is unclear, but likely to be “yes.” Unfortunately, the C.A.R. Residential Purchase Agreement (RPA) does not specifically address whether a seller must give a new NBP under these circumstances. Your buyer can argue that a new NBP is required. Your buyer can point out that the previous NBP is ineffective for the June 2nd deadline because a NBP “may not be Delivered any earlier than 2 Days prior to the expiration of the applicable time for the other Party to remove a contingency” (paragraph 14E of the RPA). However, the seller’s counterargument would be that the previous NBP was properly served for the May 26th deadline and nothing in the contract specifically requires the seller to serve the NBP again (see paragraph 14D).
In this situation, the buyer’s position may ultimately be stronger because the seller’s cancellation without a new NBP may be too harsh of a result under the seller’s obligation to act in good faith and deal fairly with the buyer. However, if the parties cannot agree on this issue, it would ultimately be up to a judge or arbitrator to decide whether the seller must serve a new NBP. Of course, no one wants to go through the legal process to get a decision on this issue. So to be safe, a buyer should just assume that the seller can cancel without serving another NBP, whereas a prudent seller should just serve a new NBP 2 days before the expiration of the extended contingency period. Next time, you can use the C.A.R. Extension of Time Addendum (ETA) for the extension of the contingency period, and under “Additional Terms,” the parties can specifically address whether the seller must serve a new NBP before cancelling.
-Thank you to Scott Harvey for suggesting this week’s legal tip.
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