The Best of the Legal Hotline: Potential Drafting Pitfalls


 Debbi Conrad & Tracy Rucka  |    August 03, 2004
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The following questions highlight areas where unintentional mistakes may occur when drafting an offer to purchase.

Which septic systems are acceptable? 

An accepted offer on vacant land included a soil test contingency. The soil test indicates that a pressure distribution system would be required, which the soil tester stated was a conventional system with a pump to the drain field. The buyer is not satisfied because he will have to build 120 feet away from his preferred building site. If the sanitary system were installed closer to the building site, a mound system would have to be used, which is not acceptable to the buyer. The buyer does not want to proceed and has submitted a cancellation agreement and mutual release form to the seller. The seller believes that all contingencies were met and that the buyer is obligated to proceed to closing. 

The soil-testing contingency on lines 275-280 of the WB-13 "Vacant Land Offer to Purchase" allows the buyer to specify the locations to be tested on the property and the types of systems that are not acceptable. The offer to purchase says that holding tanks, privies, composting toilets and chemical toilets are acceptable and gives the buyer the opportunity to specify any unacceptable septic systems. Pressure distribution systems and mound systems are acceptable unless the buyer specifically indicates that they are not.

DRAFTING TIP: If a buyer does not want a certain type of septic system, i.e. a mound system, the buyer must name the unacceptable systems in the additional provision lines or in an addendum.

Incorporating addenda 

Addenda A, B and S all were referenced on and attached to the buyer's offer to purchase. The seller's counter-offer modified some of the provisions on Addendum B. The buyer accepted the seller's counter-offer. The seller never initialed Addendum B. Is the Addendum B part of the offer to purchase? 

An addendum does not need to be initialed or signed to be a part of the offer. If the addendum was properly incorporated into the offer to purchase, the terms and conditions of the addendum, as modified by the counter-offer, became a part of the offer. Brokers should confirm that all addenda are referenced in the offer, delivered to the parties and, when possible, initialed or otherwise acknowledged to minimize later disputes.

DRAFTING TIP: Incorporate addenda into the offer to purchase by listing the addenda in the offer's "Addenda" provision [The attached ___ is/are made part of this Offer.] and attaching the addenda to the offer.

Negotiating the offer to purchase 

If a buyer wants to change an offer that has not been accepted or countered, should an amendment be used? 

The most appropriate form to change the terms and conditions of an unaccepted offer to purchase is a WB-44 "Counter-Offer." Regardless of the seller's action on the buyer's original offer, the buyer may use a counter-offer to modify the offer for the seller's consideration. Offer negotiations do not require a back-and-forth pattern - a buyer can counter his or her own offer.

DRAFTING TIP: The WB-44 "Counter-Offer" form is used for negotiations when the offer has not yet been accepted; the WB-40 "Amendment to Offer to Purchase" is used only after the offer is accepted.

Multiple counter-proposal for one buyer 

An agent modified the WB-46 "Multiple Counter-Proposal" to counter a single offer. The language about multiple offers and the word "multiple" on the title line was crossed out and language stating that more than one offer was being countered was removed. Is this legal? 

A. The WB-46 would not ordinarily be appropriate for use when a seller is dealing with just one buyer. If, however, a seller wished to submit a nonbinding proposal to just one buyer, a WB-46 may be used, as long as all references to multiple buyers are eliminated. A licensee could be subject to liability for misrepresentation if the buyer wasn't clearly informed in writing that only one buyer was receiving a counter-proposal.

DRAFTING TIP: When using a WB-46 for only one buyer, strike the first two sentences (lines 1-2), strike the word "multiple" from the title and throughout the form, and include an affirmative statement that the seller is issuing only one counter-proposal.

After-closing escrow agreements 

The buyer and seller have agreed to escrow $2,000 of the closing proceeds for 30 days because the seller will not be able to finish the landscaping until after the closing. The seller agrees to pay for the landscaping and pay the buyer $30 per day should work not be done by the deadline. Is an escrow agreement required if the broker will hold the $2,000 in his trust account?

The parties or an attorney must draft an escrow agreement, per § RL 18.07. The broker could draft the agreement for an after-closing escrow only if there were a DRL-approved form for escrow agreements (there is not). If the parties draft their own escrow, they may consider having legal counsel review the terms of the amendment and escrow agreement to assure that the agreement is enforceable and meets the intent of the parties. Exceptions to this rule include after-closing escrows for occupancy, possession, tax prorations and charges incurred by the seller but not yet billed - these need only be noted on the closing statement.

DRAFTING TIP: If money will be escrowed for work being done after closing, alert the parties that they must have the escrow agreement drafted by an attorney (the title company may be able to accommodate this) or they must write it themselves.

Forms from governmental agencies 

When the broker sold a HUD home, the parties only signed the special HUD addenda and the required HUD contracts; they did not sign the WB-11 offer. Must they sign this? 

Real estate licensees may use forms prepared by governmental agencies for use in programs administered by them under authority provided by law per § RL 16.01(d). Approved offer to purchase forms are not required if there is a comparable governmental agency form appropriate to the transaction.

DRAFTING TIP: For more information about selling HUD homes, brokers should go to the HUD Web site at www.hud.gov/offices/hsg/sfh/reo/hwtosell.cfm for information. The broker handbook for selling HUD properties is called the "Guidebook for Real Estate Professionals" and is available online at www.firstpreston.com.

Brokers shouldn't draft right of first refusal 

Is there a form for right of first refusal? If not, can a broker incorporate language for this into an offer on another vacant land property?

There is no pre-printed DRL-approved form for a right of first refusal. To insure that any right of first refusal provisions in an offer are competently drafted and adequately address the parties' needs, these provisions should be drafted, or at least reviewed, by an attorney.

The most common type of right of first refusal is one where the owner gives the potential purchaser the first right to buy the property upon the terms and conditions offered by a third party buyer. The potential purchaser typically has the opportunity to match the price, terms, and conditions offered by the third party buyer. Only an attorney, not a REALTOR¬ģ, may draft a separate, free-standing right of first refusal agreement.

DRAFTING TIP: Refer parties to an attorney if the right of first refusal provisions do not include a detailed description of how and when the right of first refusal will be implemented. The description should include the names of the parties; a description of the property; the price, unless the price and other terms are determined by the terms offered by a third party buyer; the deadlines by which each party must act if a third party offer is received; and the overall term of the right of first refusal (does it run forever, 10 years, etc.?).

  Editor’s note: The DRL became the DSPS in 2011. Information above may not be current. 
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