As fair warning to everyone, today’s Legal Tip addresses an issue that you will want to know about before, not after, something goes wrong in one of your transactions!

Background: Last month, C.A.R. rolled out its June 2023 Forms Release, which included some new “clarification language” in C.A.R.’s Notice to Buyer to Perform (NBP). Unfortunately, the “clarification language” may actually cause confusion, as discussed below. But as a listing agent, you can easily sidestep this issue entirely by remembering that, under the Residential Purchase Agreement (RPA), a seller cannot serve an NBP for the removal of a buyer’s contingency until 2 days before the expiration of that contingency period (see paragraph 14E of the RPA).

Multiple Choice Question: Let’s say that a buyer with a signed purchase agreement has a 17-day inspection contingency, and a 25-day loan contingency. On Day 17 of the agreement, the seller serves the buyer with an NBP to remove all contingencies. Is the NBP valid? Pick the best answer:

A. Yes.
B. Yes for the removal of the inspection contingency, but not for the removal of the loan contingency.
C. Yes for the removal of the loan contingency, but not for the removal of the inspection contingency.
D. No. 

Answer: Answer A is wrong. In our situation, the service of the NBP on Day 17 for a 17-day inspection contingency is proper. But the service of the NBP on Day 17 for a 25-day loan contingency is too early. A seller cannot serve an NBP until 2 days before the expiration of the applicable contingency period (see paragraph 14E of the RPA). Additionally, the RPA further states that, if an NBP “is incorrectly Delivered . . . , the notice shall be deemed invalid and void, and Seller . . . shall be required to Deliver a new” NBP (see paragraph 14E of the RPA).

Answer B appears to be the correct answer as according to the new “clarification language” in the NBP itself. That “clarification language” says in relevant part as follows: “If for any contingency . . . selected this NBP is delivered before the time permitted in the Agreement, the notice shall be void for only those specific contingencies . . . , but this NBP shall be valid for all other contingencies . . . .”

Unfortunately, however, Answer B is probably wrong. The purported “clarification language” in the NBP seems to contradict paragraph 14E of the RPA. In our particular situation, the “clarification language” in the NBP seems to say that the NBP is valid with respect to the removal of the inspection contingency, but void with respect to the loan contingency (as in Answer B). Yet, paragraph 14E of the RPA seems to say that the entire NBP is void (as in Answer D).

Answer C is wrong, because serving an NBP on Day 17 is proper for a 17-day inspection contingency, but too early for a 25-day loan contingency.

Answer D is likely to be the correct answer if this matter ever goes to arbitration or litigation. At a minimum, Answer D, “the entire NBP is void,” is what a buyer can argue, especially if the buyer is seeking more time before removing any contingency. The buyer’s reasoning will be that the “clarification language” in the NBP is not part of the parties’ agreement, whereas paragraph 14E of the RPA is a part of their agreement. It may be difficult for a seller to argue otherwise, given that an NBP is never even signed by a buyer. The signature lines at the bottom of the NBP are for the sellers only. Yet, the RPA itself specifically states that the agreement cannot be amended except in writing signed by both parties (see paragraph 27).

Copyright© 2023 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 July 10, 2023. 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. Written by Stella Ling, Esq.