Question: This is a follow-up to the Legal Tip from 2 weeks ago addressing how “5 Days Prior to Close of Escrow” in the RPA includes Saturdays, Sundays, and legal holidays. Let’s say you are the buyer’s agent for a pending sales transaction. Five days before close of escrow, you discover that the seller repairs have not yet been completed as agreed. Can your buyer delay the buyer’s final walk-through and the closing of escrow accordingly, without risking the seller’s service of a 3-day Demand to Close Escrow (DCE)? 

Answer: Yes, as long as you create a good paper trail of what’s going on (see item #2 below).

1. Buyer’s Right to Final Walk-Through: I will immediately concede right off the bat that the relevant language in the Residential Purchase Agreement (RPA) could have been drafted better. It states in paragraph 15 that, “Buyer shall have the right to make a final verification of the Property within 5 Days Prior to Close of Escrow” to, among other things, confirm that the seller repairs have been completed.

Whenever a seller does not complete repairs at least 5 days before close of escrow, the listing agent will typically argue that “within 5 Days Prior to Close of Escrow” in paragraph 15 means that the seller can complete the repairs 5, 4, 3, 2 or even one day before close of escrow.

Yet, that interpretation is unlikely to be correct for at least 2 reasons. First, it ignores the words that the “Buyer shall have the right” to a final verification 5 days before close of escrow. For a listing agent to argue instead that it’s okay for a seller to complete repairs just one day before close of escrow is ludicrous. Everyone knows that buyers generally conduct a final walk-through before they feel comfortable enough to deposit their funds into escrow and sign loan docs. Moreover, if there are any lender-required repairs, lenders will not fund the buyer’s loan until such repairs are completed. If seller repairs are not completed until one day before close of escrow, it will be impossible in the ordinary course of a typical sales transaction for the buyer to close escrow by the next day.

Second, arguing that sellers can complete repairs any number of days up to 5 days before close of escrow imputes the language “at the Seller’s sole discretion” into paragraph 15. But those words are plainly missing from paragraph 15. Additionally, it defies logic to impute “at the Seller’s sole discretion” when the greater likelihood for describing the timeframe for a buyer’s right to a final walk-through would be “at the Buyer’s sole discretion.”

2. Creating a Paper Trail of the Delay: The law provides that one side to a contract can reasonably delay performance when such delay is caused by the other side’s failure to timely perform (Cal. Civil Code section 1511). Even mere common sense dictates that to be true.

However, when a seller does not complete repairs at least 5 days before close of escrow, the buyer’s side should immediately inform the seller in writing that the buyer is preserving the buyer’s right to conduct a final walk-through at least 5 days before close of escrow. Otherwise, a buyer’s failure to preserve that right in writing could be construed as a waiver of that right.

If the seller agrees with the buyer’s preservation of rights, the parties can use C.A.R.’s Extension of Time Addendum (ETA) for a new closing date.

-Thank you to Tim Swan (Brentwood Manager) for suggesting this week’s legal tip.

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 September 21, 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.