Are buyers obligated to pay the Due Diligence Fee if they terminate before the Fee is delivered?
QUESTION: I represent sellers who recently received an Offer to Purchase and Contract (form 2-T) on their home. The offer was satisfactory to the sellers and they signed it that evening. The Contract provided for a $1,000 Due Diligence Fee and a $5,000 Earnest Money Deposit, which was to be delivered within 5 days of the Effective Date. I sent the contract back to the buyer’s agent and I requested that he confirm receipt of the Contract, which he did.
Two days later, the buyer’s agent notified me that the buyers had decided to terminate the Contract. I told him that was his clients’ right but that the sellers are due the $1000 Due Diligence Fee. The buyer’s agent has not given me a check for the Due Diligence Fee. Am I correct that the sellers are entitled to the Due Diligence Fee?
ANSWER: Yes. The offer became a Contract when the sellers signed it and you communicated that fact to the buyer’s agent. See paragraph 1(g). The fact that the Due Diligence Fee isn’t delivered before the buyers terminate doesn’t relieve the buyers of the contractual obligation to pay the Fee. The buyers agreed to pay the sellers a Due Diligence Fee in exchange for the right to terminate the Contract during the Due Diligence Period for any reason or no reason. In choosing to exercise that right of termination the buyers have gotten exactly what they bargained for and should not be heard to say that they should be relieved from holding up their end of that bargain.
If the buyers refuse to pay the Due Diligence Fee, the sellers may have an argument that they are entitled to the Earnest Money Deposit as well. The argument would be that the buyers’ failure to pay the Due Diligence Fee constitutes a breach of contract and paragraph 1(e) states that in the event of a breach of contract by the buyer, the Earnest Money Deposit shall be paid to the seller. Although we don’t know how a judge might rule on such an argument, in our opinion the buyers would be well advised to promptly pay the Due Diligence Fee to avoid the argument being made.
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