When it comes to buying or selling a home, understanding the processes and responsibilities of the seller, the buyer, and the real estate agent are very important for a number of reasons. For one thing, it allows each side to set common terms in order to successfully close the deal. However, when the agreed upon terms are not met by either side, an escape clause can be used to get out of the contract without penalty. In this blog we will discuss the ‘escape clause’ in real estate, what it is, and how it is used to protect clients in a home purchase or sale.
Escape Clause Defined
In the world of real estate, an escape clause is essentially a contractual agreement between a buyer and a seller which allows the seller to terminate the agreement if certain conditions are met. The escape clause also works the other way, giving the buyer the right to back out of the deal, if, for example, an inspection reveals defects or irregularities in the home post sale.
In legal terms, the Ontario Supreme Court provides us with the following definition of an escape clause part of an Agreement Of Purchase and Sale (“APS”), and what it means for both buyer and seller:
“Provided further that the Sellers may continue to offer the property for sale and, in the event that the Seller receives another Offer satisfactory to the Seller, the Seller may so notify the Buyer in writing by delivery to the Buyer personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedules thereto. The Buyer shall have 24 hours from the giving of such notice to waive this condition by notice in writing delivered to the seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedules thereto, failing which this Offer shall be null and void, and the Buyer’s deposit shall be returned in full without deduction.”
Even though escape clauses are rare in real estate, when used correctly and in specific situations, they are certainly a very powerful tool in a buyer’s and seller’s negotiation toolkit.
Important Principles Of Real Estate Agreements In Ontario
For the purpose of better understanding how an escape clause can be used, let us first remember some key principles in real estate agreements. Usually, the buyer is obligated to fulfill their conditions or waive the deal as per an agreement with the seller. However, if a condition is included, it can give the buyer the right to terminate the deal and have a full return of their deposit without interest or deduction.
What does an escape clause mean for the seller? Well, after a binding agreement has been signed, the seller has only a few options to back out of the contract. The escape clause is one of those options that gives the seller the right to back out of a home sale and accept a better offer if the buyer does not fulfill the conditions within a set amount of time.
If you browse MLS listings in Ontario, you can find homes that are sold with an escape clause with the initials SCE or “Sold Conditionally with an Escape Clause”.
Partnering with various mortgage specialists, brokers, and having access to exclusive listings and key connections, our team is dedicated to making sure that your home is sold quickly, without hassle, and at the best possible price. Contact us to learn more.
