Review of Multi Board Residential Real Estate Contract 4.0 - "How 10 days can kill you"
Linked is an outline that our firm has used in giving seminars on the Multi Board Residential Real Estate Contract 4.0 as revised as of 2006. If your office is interested in a seminar, please feel free to contact Tom Anselmo (630-983-3393) or Robb Rappe (630-637-2926) and we can set up a time to schedule a seminar for your office.
As part of our review of the "new contract," we are going to post a number of articles on various parts of the contract that we believe warrant discussion. This is Part One and its focus is the "automatic kill" provision of the Attorney Review and Home Inspection Contingencies (paragraphs 9 and 10 in version 4.0).
Many industry professionals are aware of the dreaded "10th day" and the need to reach a resolution of the attorney modifications and home inspections within 10 business days after the contract was executed by all parties. Many form contracts have a 10th day provision (ALTHOUGH EVERY CONTRACT SHOULD BE REVIEWED TO VERIFY THE TIME FRAME), including the Multi Board Form 4.0. Form 4.0 however has drastically changed the legal effect of this "10th day." The relevant portions of the old version (3.0) and the new version (4.0) are listed below (emphasis in bold is exactly how the contracts appear):
OLD VERSION (3.0)
Paragraph 12, lines 102-104 (Attorney Review)
"If within ten (10) business days after Date of Acceptance written agreement on proposed modification(s) cannot be reached by the Parties, this Contract shall be null and void and earnest money refunded to Buyer upon written direction of the Parties to Escrowee."
Paragraph 11, lines 89-92 (Professional Inspections)
"If within ten (10) business days after Date of Acceptance, written agreement cannot be reached by the
Parties with respect to resolution of inspection issues, then either party may terminate this Contract by
written notice to the other Party and this Contract shall be null and void and earnest money refunded to the Buyer upon written direction of the Parties to Escrowee."
NEW VERSION (4.0)
Paragraph 9, lines 76-78 (Attorney Review)
"If prior to the expiration of ten (10) Business Days after Date of Acceptance, written agreement is not reached by the Parties with respect to resolution of proposed modifications, then this Contract shall be null and void."
Paragraph 10, lines 87-89 (Professional Inspections)
"If prior to the expiration of ten (10) Business Days after Date of Acceptance, written agreement is not reached by the Parties with respect to resolution of home inspection issues, then this Contract shall be null and void."
Under form 3.0, the parties had 10 business days after contract acceptance to reach a WRITTEN resolution as to all attorney modifications and home inspection issues. After the 10th day, either buyer or seller could terminate the contract if home inspection issues were not resolved by SENDING WRITTEN NOTICE to the opposing party. It is arguable that this also applied to attorney modification(s). Under 3.0, it is not entirely clear whether the contract is immediately null and void and written direction is needed only to direct the return of the earnest money (why would written direction be needed for a ministerial act where the contract is already null and void?), or is written direction required to terminate the contract and return the earnest money?
Any ambiguity under 3.0 has now been resolved as form 4.0 changes these provisions to state that if written agreement is not reached by the 10th day, the contract automatically becomes null and void. No action need be taken by either party -the contract is simply dead. This is an example of a self-executing contingency.
OUR ADVICE-RESOLVE ALL MATTERS PRIOR TO THE EXPIRATION OF THE 10TH DAY. This also means that parties/attorneys will now have to be careful that a document or letter is executed by the parties or their attorneys (if authorized) which specifically revives the contract and acknowledges it as being in full force and effect if an agreement is reached after the 10th day. This should give all parties a greater sense of urgency to get all matters resolved by the 10th day so as to avoid losing a buyer who might be looking at other houses, or from the buyer's perspective, to avoid losing their dream house because the seller has another offer and the 10th day has come and gone without a final written agreement having been reached.
Robert H. Rappe, Jr © 2006. Senior Partner
Freedman, Anselmo, Lindberg & Rappe, LLC.
Thomas Anselmo, Real Estate Practice Partner