Using a Kick-Out Clause in a Contract

Contingency, Kick-Out Clause

Some sellers may request a kick-out clause in their purchase contract. A kick-out clause gives the seller the right to “kick out” the buyer who has contingencies in the contract under certain conditions if the seller receives another offer. A kick-out clause carries some risks for both parties so sellers and buyers should be sure they understand the implications of including one in their contract.

Understanding a Kick-Out Clause

A common contingency used in contracts with kick-out clauses is that prospective buyers must sell their current home in order to proceed with the purchase of a new home. Typically, a potential buyer is unable to purchase the new home until they have proceeds from their current home sale. The seller does not want to stop marketing the house while waiting for the buyer to fulfill his contingency, especially since the time period for the contingency is uncertain. So, the parties reach an agreement – a kick-out clause gives the seller the right to continue his marketing efforts while the contingency is outstanding.

If the seller finds another buyer, the seller gives the first buyer the option to remove the contingency and continue with the transaction or opt out of purchasing the property in accordance with the contingency. The initial buyer receives a limited amount of time to make this decision, usually around 72 hours.

How a Kick-Out Clause Can Benefit Sellers

For the seller, a kick-out clause has obvious benefits. The seller’s house can remain on the market even though the seller has entered into a purchase contract. Subject to possible state restrictions, the seller can also accept other offers during this time period. This prevents the seller from losing the opportunity to market his home for what could be an extended period of time.

Potential Pitfalls

But purchasers may still be able to nullify the contract on other grounds. If the purchasers remove the kick-out-period after 72 hours, they can still walk away from the contract based on another contingency that has not been met. If the financing contingency remains, and the lender refuses to guarantee financing if the purchasers have not sold their home, then the seller cannot proceed with the transaction.

To avoid this situation, a purchase contract with a kick-out clause should be carefully drafted to state that the potential buyer can remove the contingency, but must verify, to the sellers’ satisfaction, that they are able to secure financing for the loan to purchase the home. If the purchasers cannot show financial readiness to move forward, then the seller can walk away from the contract.

The experienced team of attorneys at the Law Offices of Mark Weinstein, P.C. can help you litigate your real estate claims. Contact Mark Weinstein and his colleagues at (770) 888-7707 or visit them at https://www.markweinsteinlaw.com to find out how they can advise you.

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