Effect of non-delivery of termination form before end of Due Diligence Period

QUESTION: At 4:58 p.m. on the last day of the Due Diligence Period, an agent representing a buyer under contract using the Offer to Purchase and Contract (form 2-T) sent the following email to the agent in our firm handling the listing: “My clients do not wish to move forward in the purchase of the property. I am sending over the termination of contract now.” However, there was no termination form attached to the buyer agent’s email or sent by separate email. It is now 5:30 p.m. and we still have not received a termination form.

Are we still under contract at this point? If the answer is yes, will the contract be over if the buyer agent sends a termination form later?

ANSWER: The way in which the buyer agent handled the matter leaves the door open to a good argument that the property is still under contract. Paragraph 4(f) of the Offer to Purchase and Contract requires the buyer to deliver written notice of termination during the Due Diligence Period, and that did not happen. The buyer agent’s email is merely an expression of his client’s intent to terminate but does not itself amount to a termination.  In addition, an agent does not have the actual or apparent authority to bind his or her principal to a contract, and likewise in our view does not have the authority to terminate a contract for his or her principal.  See the NC Court of Appeals case of Manecke v. Kurtz for a good discussion of the subject of a real estate agent’s authority to bind his or her principal to a contract.

Will the contract be terminated by the delivery of a termination form later? Arguably, no. The buyer’s right to terminate for any reason or no reason during the Due Diligence Period expired when the Due Diligence Period ended, so any attempt to terminate on that basis now should be ineffective. At this point, the best way to clearly terminate the contract in our view would be by mutual agreement using form 390-T. However, the seller may take the position that the buyer’s termination of the contract after the end of the Due Diligence Period is a breach of contract, entitling the seller to keep the Earnest Money Deposit. If the parties are unable to agree on the disposition of the EMD, they could use form 391-T to terminate the contract and “agree to disagree” about how the EMD should be disbursed. If they are unable to agree on a mutual termination of the contract, they should be advised to seek legal counsel regarding their rights and responsibilities.

Agents must take the end of the Due Diligence Period very seriously to avoid situations like this, and should plan ahead so that if the buyer decides not to go through with the transaction, written notice of termination from the buyer can safely be delivered before the end of the Due Diligence Period.