Understanding the 72-Hour Clause in Property Transactions

The 72 Hour Clause

The famous 72-hour clause—if you are buying or selling a property, you may encounter this clause in your Offer to Purchase or sale agreements. It often causes confusion, so let’s clarify its meaning and impact on buyers and sellers.

What is the 72-Hour Clause?

The 72-hour clause relates to the suspensive conditions in an offer to purchase. A suspensive condition in a property sale agreement makes the sale dependent on fulfilling a specific condition or event by a certain deadline. The agreement is unenforceable until it is fulfilled. Examples include the buyer needing to obtain a bond or sell their property. If the buyer fails to meet these conditions within the agreed time, the sale will fall through.

During this period, the seller doesn’t know if the sale will proceed and cannot stop marketing their property in the hope that the buyer will fulfill their conditions.

How Does the 72-Hour Clause Work?

Inserting a 72-hour clause, or “Continued Marketing” clause, in the sale agreement allows the seller to continue marketing the property. Here’s how it works:

  1. Acceptance of Offer with Suspensive Conditions: The seller accepts an offer with suspensive conditions, making it first in line. The seller can continue to market the property and accept backup offers.
  2. Receiving a Backup Offer: If a second buyer submits an offer without suspensive conditions, the seller can invoke the 72-hour clause in the first buyer’s agreement.
  3. Notification to First Buyer: The seller notifies the first buyer, in writing, that another offer has been received without suspensive conditions, usually providing proof of the offer.
  4. First Buyer’s Response: The first buyer has 72 hours (or the specified period) to fulfill all suspensive conditions or waive them, committing unconditionally to the offer. This is risky unless they are certain of their financial position.
  5. Outcome: If the first buyer cannot fulfill the conditions within 72 hours, the first offer is canceled, and the second buyer’s offer becomes valid.

Implications for Buyers and Sellers

For Buyers: The 72-hour clause can add pressure. Be prepared to act quickly if notified. Once your offer is accepted, work diligently to fulfill all suspensive conditions.

For Sellers: The 72-hour clause offers flexibility, allowing you to continue marketing your property and potentially accept further offers. However, manage communications effectively to keep all parties informed.

Handling Backup Offers

Ensure your agent includes an extra clause in backup offers to protect all parties’ interests and clarify responsibilities. This clause should state that the offer is ‘subject to the successful cancellation of the previous existing offer’ and outline the conditions under which the previous offer will be canceled.

Avoiding Legal Complications

Including a “Subject to cancellation…” clause in backup offers prevents the seller from inadvertently selling the property to multiple buyers. This clause ensures the seller does not accept multiple offers without stipulating that they are subject to the cancellation of other offers, avoiding potential legal disputes.

Recap

Communication is key:

  • Buyers: Stay in regular contact with your agent and fulfill your conditions quickly.
  • Sellers: Work closely with your agent to understand the status of your offers and communicate transparently with all potential buyers.

Tips for Buyers:

  • Pre-approve your financing before house hunting to speed up the loan application.
  • Act quickly if you receive 72-hour notice.
  • Maintain close contact with your agent.

Tips for Sellers:

  • Continue marketing your property until it is sold unconditionally.
  • Maintain clear communication with all parties.
  • Manage offers efficiently with your agent.

Read the wording of the 72-hour clause carefully, as it can vary between agreements. Ensure you understand the notice period and terms under which the seller can give notice.

By understanding and managing the 72-hour clause, both buyers and sellers can navigate property transactions smoothly and confidently.

Please contact us if you have any questions or need guidance on selling or buying property. We specialize in making the process as smooth as possible.

We look forward to hearing from you…