It sounds less than nice, kind of like a karate move, but what is a kick-out clause exactly, and what does it get used for? Well, allow me to explain...
What a kick-out clause is
A kick-out clause is just a little section in a purchase contract for real estate. It simply states that, in exchange for taking the risk of accepting a buyer's conditional offer to purchase a property, the seller will have the right to continue marketing the property. And if a better offer comes along, the first buyer will have to either fulfil the conditions of the contract, or lose out on the sale. The seller can, in other words, "kick" the buyer out of the purchase, if a better buyer comes along and the first buyer cannot perform satisfactorily.
A kick-out clause is also known as a "release clause" or "escape clause", because the seller can make use of the kick-out clause to escape from a less favourable contract of sale. The kick-out clause protects the seller from losing precious marketing time because of a buyer who cannot fulfil the conditions of their contract of sale.
For sellers, kick-out clauses are wonderful things. But for buyers they're just a pain in the butt!
Sellers love kick-out clauses
From the seller's point of view, a conditional offer to purchase (subject to the sale of another property, or subject to mortgage approval) is risky. If the seller accepts, the house is out of the market. But if the buyer cannot fulfil the condition, the seller's home has to go back on the market, usually after a significant amount of time.
If you are a seller who wants to sell a property in a reasonably short time (as all sellers usually do), you would prefer to get unconditional offers to purchase your property only. But property prices being as high as they are, there are very few buyers who can make cash offers to buy property, so conditional offers to purchase are a fact of life. But a kick-out clause can limit the risks a conditional offer can bring.
Buyers hate kick-out clauses
From the buyer's perspective, a contract with a kick-out clause is risky. If the seller finds a better offer too quickly, the buyer will have gone through a lot of effort for nothing. The kick-out clause will come into effect and the buyer will not be able to provide guarantees yet, so the buyer will lose out on the property.
When you are a buyer who needs to make a conditional offer to purchase a property, it can be very difficult to find a seller who will be willing to accept such an offer. But, if you do find one, the seller is likely to want a kick-out clause included in the contract of sale to limit their risk. So, kick-out clauses are a fact of life. But a buyer can limit the risks a kick-out clause can bring.
Now you know what a kick-out clause is
That, in a nutshell, is what a kick-out clause is about. They get used in purchase contracts all over South Africa. So, if you are thinking of buying or selling property in the most beautiful country in the world, you might want to read some of the other articles about it here on the RealFact.net web site.
