Buyer Cancellation and Seller Right to Receive Reports
Here’s the situation, a Buyer has cancelled a sale based upon information in an inspection report. Although the Buyer might have a right to cancel within the inspection period, the Seller refuses to release the Buyer’s deposit unless the Buyer provides copies of his inspection reports. The Buyer refuses unless the Seller agrees to reimburse him for the cost of the inspections. Seller refuses. Who wins?
As with most matters concerning real estate law, the answer lies in the express terms of the written contract. Most Realtors use the CAR Residential Purchase Agreement (RPA-CA) and in this form and similar CAR forms the answers are clear:
1. Buyer can Cancel and get their Deposit Back – Under Paragraph 14, the Buyer has a right within the Contingency Period to either: 1) accept the Property and remove the contingency; 2) Request that Seller make repairs; or 3) Cancel the Agreement. There is no contractual obligation that the Buyer justify the cancellation based upon the contents of any inspection report. In fact Paragraph 12.A. expressly states that the contingency extends to “Buyer’s acceptance of the condition of, and any other matter affecting the Property…”. So, under the Contract terms, the Buyer has a right to cancel for any reason and get their deposit back if the cancellation occurs before the end of the Contingency Period.
2. Buyer must give Seller copies of any Inspections – Under Paragraph 12.B.II, the Buyer shall “give Seller, at no cost, complete Copies of all such investigation reports obtained by Buyer, which obligation shall survive the termination of this Agreement”. If the Buyer refuses to provide copies of the Inspection Reports or demands payment, the Buyer is in breach of Paragraph 12.B.II, and the Seller would be legally justified in refusing to release the Buyer’s Purchase Deposit. This is especially important because if there are adverse conditions referenced in any such Report, the Seller will want to know about this and determine if there is a disclosure obligation for future buyers.
Are there any loopholes that would change these conclusions? Lawyers are in the business of finding facts that would support their client’s position. For example, California law recognizes that in every contract or agreement there is an implied promise of good faith and fair dealing. This means that each party will not do anything to unfairly interfere with the right of any other party to receive the benefits of the contract; however, the implied promise of good faith and fair dealing cannot create obligations that are inconsistent with the terms of the contract. So, if a Buyer simply changes his mind or finds a property he likes better and then cancels without identifying any specific defect in the Property, is that a breach of good faith and fair dealing? It could be argued that it is…. but then the RPA expressly gives the Buyer this unconditional right.
Many thousands or dollars and many months worth of time can be spent mediating and then litigating or arbitrating this issue. Meanwhile, the Buyer doesn’t get his deposit money back to buy another property and the Seller’s home may or may not remain tied up in escrow. For this reason, quick settlement may be the most expedient solution even though both Buyer and Seller may feel they are right.
The attorneys of BPE Law Group, P.C. advise and represent buyers, sellers, and their real estate agents in dealing with their legal concerns and resolving disputes. If you would like a consultation with us, please call our office at (916) 966-2260 or e-mail me at firstname.lastname@example.org .
This article is not intended to be legal advice, and should not be taken as legal advice. Every case requires review of specific facts and history, and a formal agreement for service. Please feel free to contact us if you need legal advice and are interested in seeing if we can help you