The Buyer Terminated the Agreement… Now What?

There has been a noticeable increase in the number of calls coming into the PAR Legal Hotline that involve some variation of the buyer terminating the agreement. So, if you’ve found yourself in this position recently, know that you’re not alone. Questions come in from both the buy and sell side, so let’s review a few common ones and the answers we may give.

Q: The buyer sent a notice of termination. Does the seller have to sign it?

A: These questions usually involve the Termination and Release of the Agreement of Sale (Form TERAREL). It’s important to understand that this document is really two separate forms on one piece of paper. The top part is a termination form; the bottom part is a form to negotiate the release of deposits.

Think of termination as a one-way street. For a termination to be effective, only the terminating party needs to sign a written notice and provide it to the other party (hint: that’s why there is only one set of signature lines for the top part of the form). The contract is terminated once the termination notice is delivered to the other party. If the top part of this form is signed by the buyer, then the buyer has terminated the contract.

The release, however, is a two-way street in this analogy, so the release portion of Form TERAREL requires signatures from both parties. If the bottom is signed by the buyer but not by the seller, then there’s no agreement to release the deposit money or breach of contract claims by the seller — but the agreement is still terminated even without solving the question of the deposit.

Q: The buyer terminated the agreement, but the seller hasn’t signed the release. Can the listing agent now market the property as active?

A: This may depend on the policy of your MLS, but in most cases we can say yes. Typically, the only reason a buyer could stop an owner from selling their property to another buyer would be to claim that the buyer still believed they had the right to purchase the property themselves. If the buyer terminated the contract — indicating that they no longer intend to obtain an interest in that property — then that would be difficult to support and selling that interest to a different buyer is likely possible (though of course sellers should consult with counsel if they have legal questions in that regard). Also, the buyer termination line of the termination form has language instructing the seller that they can make the property active again.

The seller’s refusal to sign the release and return the deposit money is merely creating a dispute over the money — not the property — so it has nothing to do with ownership. The seller can generally move on with a different buyer while the issue of breach and/or return of the deposit is unsettled.

Q: The buyer terminated the agreement after conducting inspections. Do I have to share the inspection reports with the next interested buyer?

A: Absolutely not. The seller’s duty related to inspection reports has been addressed in a previous article. Their obligation is to reveal material defects only, which might mean that they must update their Seller’s Property Disclosure Statement (there’s even a form for that) if they obtain new knowledge of a material defect. While an inspection report may be provided to prospective buyers, there is no legal requirement to hand it over.

Q: The buyer’s loan was denied/the property didn’t appraise/the buyer lost their job, so they terminated and now the seller is refusing to release the deposit. Can they do that?

A: First, please read the terms of the agreement of sale carefully. There are many specific instances in which a contingency gives the buyer the right to terminate but the buyer does not have the contractual right to terminate if they are unable to get a mortgage approved. The mortgage contingency gives a right of termination to the seller (yes, you read that right), but not the buyer. Without an appraisal contingency, the buyer has no right to terminate because of a lower-than-expected appraised value. The agreement requires the buyer to notify the seller of a change in financial status but does not state anywhere that the buyer may terminate the agreement due to that change.

So, what happens if a buyer terminates without a contractual right to terminate? Odds are good that the seller would say that they believe the buyer has defaulted on the contract and that they dispute the return of the deposit — as is their right. If the parties cannot resolve this dispute via negotiations or mediation, it may end up being addressed under Paragraph 26(C) of the Agreement of Sale.

Bonus because it’s not really a question:

Q: Well, my buyer sent over the termination, but the listing agent and I are still talking and trying to keep the deal together…

A: While technically not a question, this is a statement we frequently hear. Please see the first question and answer above. Once a termination has been signed and delivered, the contract is over. Sending a signed notice of termination is an action that has legal consequences, not a negotiation tactic. Continuing negotiations between the parties muddies the water and confuses the parties. If your buyer is unsure about whether to terminate, they need to pause and consult with legal counsel, if necessary, before sending it.