Kick-Out Clauses

Often, there is some lag-time between a seller's ability to sell a home and his or her ability to buy a new home. In many cases, sellers rely on the proceeds of the former transaction to ensure the latter. In some cases, a seller can use a current house as leverage to buy the second property. When a buyer offers to purchase a house, various contingencies are included. A contingency allows the contract for the new property to be rendered void if a specified event—such as the sale of a home—does not occur. The contingency entitles a buyer to a refund of the earnest money deposit. A kick-out clause is a valuable tool to allow a seller to continue marketing and showing a house for sale and to kick out a prospective buyer who has a contingent contract, if the seller receives an offer from another buyer who will buy without a home sale contingency. If you are considering whether to propose or accept a kick-out clause, you should contact the Boston real estate attorneys at Pulgini & Norton.

Many buyers of residential real estate plan to use the proceeds of the sale of their own home to buy a different home. They may try to protect their deposits by conditioning their own performance on the sale of their existing home. Often, they request a period of time—anywhere from 30 to 90 days—within which to sell their home. Although this is a reasonable request from the buyer's perspective, the seller faces some risk in agreeing to this because if the buyer does not actually sell the house during the specified period, the buyer can cancel the contract and get the deposit back. Meanwhile, the seller will need to relist and market the house, undergoing further expense.

Sometimes the solution for a seller is to propose a kick-out clause. A kick-out clause allows the seller to continue listing the house for sale. If the buyer does sell the house during that time, the buyer closes title on the seller's house. However, the seller is not hurt if the buyer does not sell the home because the seller was able to continue showing the home.

If the seller receives a bona fide offer, the kick-out clause will specify some period of time, sometimes up to 72 hours or a certain number of business days, for the buyer to either waive the home sale contingency or terminate the purchase and sale agreement. The seller must notify the first buyer about the bona fide offer. If the buyer terminates the agreement, the seller is free to sell the property to the new non-contingent buyer. The buyer receives back the deposit. However, in some cases, the buyer decides to buy the seller's house without selling his or her own house. The closing then will proceed.

Sometimes there are two or more contingencies in a real estate contract. One contingency may be based on a buyer's ability to sell his or her current home, while the other contingency may be based on the buyer's ability to secure the necessary funding from a lender. If a buyer removes the home sales contingency, a financing contingency may remain. In order to address potential issues with contingencies appropriately, a kick-out clause must be carefully and appropriately drafted.

A kick-out clause can be useful for both the buyer and the seller because it allows the seller to continue marketing his or her home while the buyer tries to sell his or her home. Whether you are a buyer or a seller, you can consult an experienced Boston real estate lawyer at Pulgini & Norton to draft a kick-out clause and the rest of an offer or a purchase and sale agreement. The property transactions attorneys at Pulgini & Norton represent buyers, sellers, and lenders in Somerville, Weymouth, Medford, and elsewhere in Massachusetts. Call us at 781-843-2200 or contact us via our online form for a free consultation.