Article Title

Lyman J. (Greg) Gregory, III

lgregory@mmrlawfirm.com

828.281.2100

90 Southside Avenue,

Ste 100

Asheville, NC 28801

90 Southside Avenue Suite 100

90 Southside Avenue Suite 100

A Legal Moment

Thoughts on the New

Offer to Purchase and Contract

        I know many of you have been attending continuing education classes on the new Offer to Purchase and Contract that will be released on January 1, 2011.  I write now to offer some thoughts from the legal perspective on the new form.

        Under the new contract, the buyer conducts all inspections during a due diligence period, and has the right to terminate the contract for any reason or no reason during that period.  The contract contemplates that buyer may, but is not required, to pay a due diligence fee.   In my opinion, the parties risk having their contract declared unenforceable if the buyer does not pay a due diligence fee.  Under a longstanding legal principle, each party to a contract must provide, or forego, something of value for a contract to be enforceable.  Failure of a buyer to pay a due diligence fee arguably means the buyer did not provide something of value for the right to conduct due diligence.  Paragraph 1(i) of the new contract atttempts to address this issue by stating the parties intend to be legally bound even if the buyer pays no due diligence fee, but under North Carolina law, this clause is of questionable effectiveness.  This is a complex legal area with many possible arguments and counterarguments.  The safest approach is to include due diligence fees in your contracts.

       Another change is the provision that the prevailing party in a lawsuit over the earnest money shall recover its attorney's fees.  The clause is intended to discourage frivolous disputes over earnest money; however, this clause will be of limited effect.  In North Carolina, contracting for the payment of attorney's fees for breach of a contract is not automatically enforceable unless there is an independent legal rule for awarding attorney's fees.  I caution relying on this clause in suits over earnest money.

        One final notable change is that title defects that prevent closing on time now result in a breach of contract by the seller.  Under the previous form, title defects were a pre-condition to the seller's duty to close.   When you are preparing listings, I recommend you advise your sellers specifically of this provision so that they can make sure they have title insurance from their purchase and take any actions they wish to satisfy themselves about the status of their title.

       If you have any questions as you begin using the new form, I suggest you consult your brokers in charge, local real estate attorneys, and other available resources.  Good luck with the new contract.

Do not hesitate to contact me to receive more information on this topic or to suggest topics for future editions of 'A Legal Moment'. You may not rely on this content as legal advice for any specific situation, but should instead contact an attorney for specific advice.