Some people call this the “cash out” clause, which is not strictly a correct description.
What is it? It is a clause used in an agreement for sale and purchase of real estate, and usually relates to when there is a long period of time for another condition or conditions in the agreement to be satisfied. By far the most common use is when the agreement is subject to the sale of another property owned by the prospective Buyer. In that situation it is usually wise to run the clause subject to the sale of the other property for some months, in order to give a realistic chance of selling. Without the escape clause, this long time frame would effectively take the property off the market for the Seller, which is not fair to them in most circumstances. A second prospective Buyer would have to wait until the end of the first contract (maybe 2 months) before their back up offer could be acted upon. Most would not wait that long and would lose interest in that property, and as such, a genuine Buyer may be lost.
The escape clause adds fairness to the above scenario. In layman’s terms it states that while the property is under contract to the first Buyer Prospect, and a second offer is made, from another Buyer Prospect, then the Seller can give the First Buyer Prospect a short time frame such as 3 working days, to make their contract unconditional. The Seller decides what is preferable, but the usual reason is that there are no conditions in the second back up offer – i.e. it is a cash offer. In practice, the 2nd back up offer often comes in with conditions, and might be accepted without an obligation to activate the escape clause until the conditions are satisfied. The 2nd Buyer Prospect works through their conditions as fast as possible, and advises that they are satisfied. At that point the Seller gives say 3 working days notice to Buyer Prospect 1 to make their contract unconditional (remove conditions) or the contract will be at an end, and the property will sell to Buyer Prospect 2. The first Buyer does not have to match any higher price in the 2nd agreement; just remove the conditions. Sometimes Buyer Prospect 1 will obtain bridging finance, or take a chance that their property will sell and they confirm their contract. Buyer Prospect 2 misses out. On other occasions Buyer Prospect 1 can’t or won’t confirm and they miss out, with the property selling to Buyer 2. Care needs to be taken with escape clauses, and Solicitors should be involved.
Kind regards, Michael
