Using the Notice of Termination | Pocono Mountains Association of REALTORS®

To use or not to Use?

The Notice of Termination of Agreement of Sale is one of the most recent forms to join the catalogue of PAR standard forms. For many years before this form was developed, actually for decades before this form was developed, the parties to an agreement of sale for one reason or another and depending on the circumstances, had the right to terminate the agreement in writing. Wow, the right to terminate but no form on which to do it! Yet, we somehow managed to avert wide-scale panic and REALTORS®from committing hari-kiri.

Now that there is a standard form, you would think that every agreement of sale lives forever unless it settles or is stabbed to death by a notice of termination. Take for example, a recent call I took on the Hotline. The agreement was contingent on mortgage financing and the buyer did not receive a commitment by the terminal date in the mortgage contingency clause of the agreement. Of course every living REALTOR®knows that if the buyer’s commitment is not received on time, only the seller can terminate the agreement and the buyer is to continue his good-faith effort to get the commitment until and unless the seller terminates.

And what if the buyer’s commitment is not received by the date for settlement? While the agreement of sale makes clear that if this is the case, all deposit money is returned to the buyer and the agreement is void, my caller could not accept this. The caller was a buyer’s agent whose buyer still wanted to obtain financing and buy the home. And while the agreement makes clear what is to happen if a commitment is not received by the date for settlement, she refused to believe that without a notice of termination, signed by the seller, her buyer was still in the ball game!

Folks, developing the standard notice of termination was a great idea, but you do not have to use it just to make me happy? It is to be used when a party has an option to terminate the agreement of sale and seeks to do so. For example, a buyer who is dissatisfied with the contents of an inspection report has the option to terminate the agreement of sale. The buyer’s dissatisfaction does not make automatic the agreement’s termination; it is an option.

Likewise, if the mortgage commitment date passes and the buyer has not produced a mortgage commitment within the terms of the contingency, then the seller has the option to terminate. Again, it is not mandatory, but an option.

There are also provisions of the agreement of sale that call for the automatic termination of the agreement when a certain event occurs. One example was the subject of my Hotline caller’s inquiry where the commitment and mortgage funds were not available by the settlement date. No notice of termination was required because there was no option to exercise. Rather, the agreement was quite clear in that case by providing that the agreement of sale was null and void (automatically terminated), and buyer was to be restored to his deposit money.

Remember too that the notice of termination and the release, while frequently used together, are completely separate documents. A notice of termination is not an agreement that requires the consent of both parties. The notice is used when one party has the option of terminating the agreement and elects to do so. The agreement of sale which was executed by both parties gave one party the right to terminate in the event of certain circumstances. That is why only the party who was given the right has to sign the notice of termination. A release, on the other hand, is an agreement between the parties that requires both parties consent and signature. The release provides that each party gives up the rights they had under the agreement of sale: the seller releases the buyer from the obligation of tendering the purchase money; and the seller relieves the seller from the obligation of transferring title to the property and all of the myriad obligations that go along with conveying real estate. The parties also give up the right to sue each other and their brokers (how convenient). In many cases after an agreement is terminate, the parties will want to release each other of the mutual obligations. It is not a requirement that they do so and there will be circumstances when an agreement is terminated, yet the parties seek to preserve their claims, whatever they may be.

Folks, the practice of real estate is tough enough when you know the forms. Fully understanding the myriad forms available through PAR and when they are to be used can make life a lot easier. It can help you avoid the petty bickering over non-income producing details.

Jim Goldsmith is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees. He and his firm represent and defend real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. Jim also defends REALTORS® in disciplinary hearings conducted by the Real Estate Commission. He routinely counsels employers on employee relations issues and is one of the voices of the PAR Legal Hotline. He may be reached at www.realcompliance.com.