The 72-hour clause, also called a release clause, kick-out clause, escape clause, or first refusal clause, is commonly inserted into real estate offer-to-purchase documents. The function of a 72-hour clause in a contract of sale is intended to protect the seller from losing valuable marketing time for his/her property, due to a suspensive condition, which drags out for too long.
The 72-hour clause enables the seller to continue offering his immovable property for sale, while guaranteeing the buyer a right of preference (or right of first refusal). The 72-hour clause is meant to allow the seller to avoid losing the first buyer, without knowing if a second buyer has the capacity to buy. The 72-hour clause also allows the first buyer time to make sure of his/her capacity to buy, in case he/she decides to make use of the right of first refusal.
Contingency Protection
If homebuyers want to buy a property, but have a home of their own to sell first, the seller may want to keep the door open, to be able to accept another offer to purchase, which is not contingent upon the sale of another property. The 72-hour clause is not limited to contingencies involving the sale of another property. It can be used to protect the seller in any contract involving a suspensive condition. The 72-hour clause functions as a resolutive condition in the contract of sale. In other words, if something specific happens, the contract cancels.
The seller can accept the buyer's offer to purchase, just as any other offer to purchase, but a 72-hour clause is annexed (added) to the offer document, and signed by both parties. The 72-hour clause allows the seller to reserve the right to accept a better offer, if one should happen to come along.
Accepting a Second Offer to Purchase
So, the seller continues to market the property, searching for a better offer. The seller can accept a new offer to purchase, just as he/she accepted the first offer. To protect the seller against liability, and to inform the new buyer about the situation, another clause should be annexed to the new offer to purchase document. This clause should state that the new offer to purchase is subject to the suspensive condition that the first contract of sale be cancelled.
72 Hours to Perform
The seller cannot simply cancel the contract, one-sidedly, upon receiving a better offer. If the seller receives a new offer to purchase, which he/she wants to accept, the buyer must immediately be notified in writing. The buyer then usually has 72 hours (from there the name "72-hour clause") to fulfil the suspensive conditions of the contract of sale, or to declare them fulfilled (even if they are not), and move ahead with the purchase of the property.
The seller may choose to send this written notice by fax, telegram, phonogram or by any other means, where receipt by the buyer can be confirmed. If the seller decides to use a fax, telegram, phonogram for this notification, the 72-hour period begins at the time recorded on the message. If the seller opts for another method, the 72-hour period begins from the time the notice is received by the buyer, not when the notice is sent.
It may be wise to require the buyer to acknowledge receipt of the 72-hour notice on a copy of this notice. The buyer should also indicate the day and time of receipt. The seller should then retain this copy as proof of notice.
It is important to note that the buyer must make himself reasonably available to receive the 72-hour notice. So, if the buyer is leaving town for a while, he must leave an address or telephone number where he can be reached in case the notice is sent. Otherwise, if the notice is sent by fax, telegram, phonogram, the buyer risks receiving the notice when it is too late.
The time period does not necessarily have to be 72 hours, though. Any time frame can be negotiated between the parties. If the buyer fails to make the contract unconditional, before the allocated time has passed, the buyer's offer to purchase the property is wiped out.
If the first buyer cannot commit to the purchase for some reason, the second contract becomes binding, and the seller proceeds to sell the property to the second buyer with the unconditional offer to purchase.
The buyer will therefore have 72 hours, to give a written notice of his intention to waive all the suspensive conditions in the agreement of sale, to the seller or his real estate agent. Or the buyer can decide to cancel his promise to purchase the property. This should also be done in writing.
The 72-hour Clause
You certainly realised by now that the 72-hour Clause is solely for the benefit of the seller. It allows the seller to escape out of the agreement. So, buyers should always try and avoid the inclusion of a 72-hour Clause, while sellers should always push for its inclusion in a conditional contract of sale.
Both the buyer and the seller should also carefully consider the wording of the 72-hour clause, as a few little words here and there can change the way it functions considerably.
