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Breaking a Contract
By arlene | January 17, 2008
No one enters a contract with the idea of not going through with it, but there are times when you may be faced with making that decision. It’s a good idea to know the positive and negative consequences of such a decision before that time arrives.
If You Are the Buyer
Consider a quote from Joseph Joubert, a French philosopher: “Never cut what you can untie.” Breaking a contract doesn’t have to be a hostile, unpleasant, stomach-churning experience. If you are the buyer, you have two good windows of opportunity to realize that you should consider breaking your contract. These are the attorney approval period and the inspection period, which are standard in real estate contracts. These are the times you get to see what you are really buying.
Negotiation Tips
Negotiating a contract is a bit of science and a bit of art. It’s learned over time and comes via direct experience. Here are a few key tips that can give you an edge in those early efforts.
Build an edge for yourself in your negotiating sessions. Try to conduct them on your own “turf,” in your office or office complex. If that’s not possible, insist on a neutral site where neither side has a home court advantage. If at all possible, avoid negotiating on the other party’s “turf.”
If negotiations stall or get derailed, walk out. Sudden and unexpected changes can shake up a meeting and create positive results. You have to do this correctly. Stand up without notice and say that things are just going nowhere. Suggest a break and then walk out of the room before anyone can agree, disagree, or mumble “say what?” Remember, you’re not trying to be obstinate. You just want to get things moving. When you feel it’s the right time or when you’ve been asked to return, be prepared with a new idea or a new slant for the negotiation process.
When you want to play the “gimmes,” give them up slowly, one at a time. It’s important for the other party to feel that he or she has worked for it. It makes their victory all the more sweet, which will translate into a sweet deal for you.
Again, you want to aim for a win/win situation. You need to get what you want, of course, but it’s also in your own best interest to let the other party walk away with that same feeling of success.
Your money will not go “hard” (become nonrefundable) until you have satisfied at least three or four items in the contract. These are the following:
- Your attorney approval period.
- Your inspection period.
- Your environmental audit period.
- Your mortgage contingency.
Once these dates expire, you will probably be required to increase the amount of your earnest money payment. You will also be required to acknowledge that by not protesting any of these items, you are moving forward in the process. You’re in effect saying “Everything’s okay, let’s proceed.”
If a seller does not deliver what is promised, clearly the buyer has the right to break the contract. However, realize that in breaking a contract you may forfeit your earnest money. The seller is allowed to keep it because of your default.
When a buyer breaks a contract, he or she obviously ruins the day for the seller. Standard boilerplate in the contract will stipulate the seller’s recourse, usually retention of the earnest money. The seller usually doesn’t have the right to pursue the buyer for any damages beyond the earnest money. This makes sense for all concerned. The seller still owns the property and he or she has been compensated for time loss.
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Topics: Contract, Course, French, Property |
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