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Notes on Terminating an Agreement of Sale

By: James Goldsmith, Esq. on in  | 

The Notice of Termination of Agreement of Sale (Form TER) was designed to accommodate sellers and buyers who were exercising a right to terminate granted by the Agreement of Sale.

For example, if the agreement is contingent upon a property inspection and the buyer finds the inspection report to be unsatisfactory, buyer may “terminate this agreement by written notice to seller…”  Similarly, when the agreement is contingent upon mortgage financing, if the buyer’s lender does not provide documents demonstrating approval by a certain date, “Seller may terminate this agreement by written notice to buyer.”

The requirement to terminate “in writing” is simple enough but members, instead of drafting a clear notice of termination, often chose to use the Agreement of Sale Release (Form AREL) that they, erroneously, equated to a notice of termination.

A Notice of Termination is unilateral. That is, the execution by one party is sufficient to terminate the Agreement of Sale. Why? Because the Agreement of Sale granted the right to that one party.

A release, on the other hand, only terminates an agreement when it is signed by both parties (bilateral rather than unilateral). Think of a release as an agreement to undue the Agreement of Sale, hold the other party harmless and provide where the deposit goes.

Consider the seller who wanted to terminate the agreement because the buyer’s mortgage commitment was not received by the due date. The seller’s agent sent a release to be signed by the buyer. The buyer did not sign, but instead prompted his lender to issue the commitment and then demanded that the seller go forward. Had the listing agent merely sent a note saying that the agreement was terminated, it would have sufficed.

It is worth noting, though, that a Notice of Termination can, like the release, be misapplied. Terminating an agreement based on certain perceived breaches by the other party may not be appropriate if the agreement does not explicitly grant a party the unilateral right to terminate. For example, if a seller failed to disclose a known material defect, that may not justify termination. If the buyer serves a Notice of Termination in this situation, is the buyer now in default. Without answering, my advice is that when termination is sought because of a perceived breach of the Agreement of Sale or perhaps the Seller Disclosure Statement, counsel should be consulted and it should be counsel who constructs what and how the other side is to be served with notice of the remedy sought. Save the Notice of Termination for situations where one party is terminating based upon a clear right of termination granted by the Agreement of Sale.

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Comments (10)

Comments

  • Gina Mercurio   December 4, 2020 at 8:55 am

    This is a very informative article. Thank you. Are these articles on file in a PAR library or best to save emails?

    Reply to Gina Mercurio
    • Kelly Leighton   December 4, 2020 at 8:59 am

      Gina,
      All of our articles are available on our website and remain so.

      Reply to Kelly Leighton
  • Dominic Cardone   December 4, 2020 at 12:21 pm

    Jim, thank you for your clarity as always.
    Our members should understand that PAR has these two separate forms serving different but related purposes.
    As you say, one is the (unilateral) “Notice of Termination” and the other is the (bilateral/mutual agreement of the parties) “Agreement of Sale Release and Distribution of Deposit Money”.

    Reply to Dominic Cardone
  • Roy Hollinger   December 4, 2020 at 3:12 pm

    I ran into a problem with a title company wanting both parties to sign the release to make sure the first agreement of sale was dead. . Maybe that is why we use it.

    Reply to Roy Hollinger
  • Jessie Stamp   December 4, 2020 at 7:34 pm

    This is so helpful! Would it make sense then that both forms should be used if: a) it’s being terminated unilaterally and b) there is a deposit release?

    Reply to Jessie Stamp
    • Hank Lerner, Esq.   December 5, 2020 at 11:40 am

      Funny you should mention that. The termination form (TER) and release form (AREL) are published as separate forms, and they are available as a combined form with both on the same sheet of paper (cleverly known as Form TERAREL). General usage is that if it looks like there will likely be an understanding on the release of deposits you can just use the combined form. I’d you think there may be a dispute, though, it can be better to use the forms separately so the termination part doesn’t get confused with the release part.

      And remember that the Guidelines for Preparation and Use for all PAR forms are available through the PAR website – login required since it is a member benefit. Even more detail is available in the Guidelines, so members should take a look at those when there are questions.

      Reply to Hank Lerner, Esq.
  • Fair, Erica   December 26, 2020 at 9:01 am

    Thank you for this information.

    In the second to the last paragraph you wrote “Had the listing agent merely sent a note saying that the agreement was terminated, it would have sufficed”. Does this mean, while probably not advisable, the Agreement can be terminated via other written correspondence versus using one of the standard forms?

    Reply to Fair, Erica
    • Hank Lerner, Esq.   December 29, 2020 at 9:19 am

      Yes. In fact, for the longest time PAR did not have a termination form and our standard response was “for Pete’s same – just send a letter that says the client terminates!” (Amusing side story: I once used that phrase with my daughter and she asked “who is Pete?)
      Form TER does fix a lot of the most common termination mistakes that were made, such as not actually terminating, or not citing appropriate ground for termination.

      Reply to Hank Lerner, Esq.
  • mike riccardi   January 7, 2021 at 2:13 pm

    I had a sale transaction where a unilateral formal termination notice and default was sent to the buyer (regular mail, email and certified mail) for non performance of contract terms and not completing settlement on the final day of closing per the agreement of sale and after a settlement was already scheduled and buyer did not show up. Seller agreed to return the entire deposit monies to buyer and a PAR form was sent to the selling agent for the buyer to sign to have his money returned to the buyer. Buyer has not signed the form and has not made any attempt to have his deposit returned to him. We now have a new buyer who wants to submit an agreement of sale. Because the buyer has not signed to have his money returned to him and has not made any attempt to obtain his deposit monies from the escrow agent, I contacted an attorney friend to get his opinion on this situation. He told me that unless the buyer signed off and had his deposit monies returned that he may still have some interest in the property and could stop an eventual sale to another buyer and I would need to file an action to quiet title to solve the problem. I am having a difficult time understanding how this could be possible when a formal notice of termination and default was sent to the selling agent and his broker company and the seller has agreed to give the buyer back his entire deposit monies. My question is; can the buyer really hold the seller hostage under those circumstances and force a action to quiet title, which will cost the seller substantial unnecessary costs or is the formal notice of termination sufficient for the seller to sign a new agreement of sale with a new buyer without having to worry about any action from the former buyer or having any kind of legal issues?

    Reply to mike riccardi

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