September 28th, 2020 at 1:51 pm
Multiple Choice Question: What should you insert as consideration for the seller remaining in possession in paragraph 2A of C.A.R.’s Seller License to Remain in Possession Addendum (SIP)? Pick the best answer:
A. Zero.
B. $1.00.
C. Zero if the SIP is entered into at the same time as the RPA, but $1.00 if the SIP is a subsequent amendment to the RPA.
D. The buyer’s PITI as a per diem.
Answer: Answer A is the correct answer. To be valid, a contract must have consideration, which is defined as something of value that a party to a contract promises to the other party. As an example, if a seller and buyer enter into a $1 million sales contract, the consideration that the seller promises to give to the buyer is the house, whereas the consideration that the buyer promises to give to the seller is $1 million.
An SIP is generally an addendum to the Residential Purchase Agreement (RPA). An addendum is defined as a document that addresses additional terms to a contract not included in the main part of the contract. Given that an SIP is just a part of the RPA, the parties do not need separate consideration or even $1.00 for the SIP to be valid.
Answer C distinguishes between an SIP as an addendum and an SIP as a subsequent amendment to an existing RPA. However, even if the parties do not have an SIP upfront when entering into the RPA, and they later modify their agreement to include an SIP, no new consideration is required. The law presumes that a written modification to a contract, such as the SIP, has consideration.
Answer D is just wrong. If the buyer does not want to charge the seller anything, you should not be inserting a per diem as consideration.
-Thank you to Rebecca Alvarado (Pasadena Office) for suggesting this week’s legal tip.
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