-The 72-Hour Clause

Also often referred to as the “Continued Marketing Clause” or “Escape Clause”. You can first watch the following video explaining the “72-Hour” clause, and then read in more detail below that.

Understanding the 72-Hour Clause in Property Transactions

The famous 72-hour clause—if you are in the process of buying or selling a property, chances are good you’re going to encounter this clause somewhere along the way in your Offer to Purchase or sale agreements. The 72-hour clause is often the cause of a lot of confusion, so let’s explain its meanings and consequences, and how it can impact you as a buyer or a seller.

What is the 72-Hour Clause?

The 72-hour clause specifically relates to the suspensive conditions in an offer to purchase. A suspensive condition in a property sale agreement is a clause that makes the sale dependent on the fulfillment of a specific condition or event by a certain deadline, and the agreement cannot be enforced until it is fulfilled. Examples of this would be when the buyer needs to obtain a bond to buy the property, or if the buyer still needs to sell their property. In these cases, the buyer is usually granted an agreed time period to fulfill those conditions. If they are unable to do so, the sale will fall through.

When there are suspensive conditions, the seller doesn’t know for sure if the sale will go through during the allowed period. The seller could find out at the end of the agreed time period that the buyer was unable to meet these conditions and is therefore not in a position to buy the property. For this reason, the seller can’t be expected to simply stop marketing their property in the hope that the buyer will be able to fulfill their conditions.

How Does the 72-Hour Clause Work?

By inserting a 72-hour clause, or sometimes referred to as a “Continued Marketing” clause, in the sale agreement, the seller is given the right to continue marketing the property. Here’s how it works:

1. Acceptance of Offer with Suspensive Conditions: Once the seller accepts an offer that includes suspensive conditions, that offer is first in line. However, the seller can continue to market the property and accept backup offers from other interested buyers.

2. Receiving a Backup Offer: If a second buyer comes along with an offer that either has no suspensive conditions attached to it or where all conditions have already been fulfilled, the seller can then invoke the 72-hour clause in the first buyer’s sale agreement.

3. Notification to First Buyer: The seller will notify the first buyer, in writing, stating that another offer has been received without suspensive conditions, and usually, proof of this offer is provided to the first buyer.

4. First Buyer’s Response: The first buyer then has 72 hours—or whatever period is specified in their offer to purchase—to fulfill all the suspensive conditions or waive them, which means binding themselves unconditionally to the offer and declaring themselves financially able to fulfill all obligations. This is very risky unless you’re absolutely sure you are in a financial position to buy the property.

5. Outcome: If the first buyer is not in a position to fulfill the conditions within the 72-hour period, then the first offer will be canceled and become null and void, and the second buyer’s offer would then be successful because their finances are all in place.

Implications for Buyers and Sellers

For Buyers: The 72-hour clause can add pressure. You’ll need to be prepared to act quickly if notified. Once a seller has accepted your offer, you must do everything you can to get all your suspensive conditions fulfilled as quickly as possible.

For Sellers: The 72-hour clause offers flexibility. It allows you to continue marketing your property and potentially accept further offers. However, you also need to manage communications effectively and ensure all parties are kept informed and treated fairly.

Handling Backup Offers

It’s crucial to ensure that your agent includes an extra clause in such backup offers to protect all parties’ interests and clarify everybody’s responsibilities and expectations. In its simplest form, such a clause should at the very least state that the offer is ‘subject to the successful cancellation of the previous existing offer.’ However, it is better to be more specific by outlining when and how, and under what conditions the previous offer will be canceled.

For example, you could specify that the first offer will need to be canceled in accordance with the 72-hour clause contained in that specific offer. Additionally, you could state exactly what conditions the second buyer will need to fulfill before the first buyer can be given their 72-hour notice. And the clause could also require the seller to give the first buyer their 72-hour notice as soon as the second buyer has met all their conditions.

Avoiding Legal Complications

Including a “Subject to cancellation…” clause in any backup offers ensures that the seller doesn’t inadvertently sell the property to two different buyers. This situation can arise if the seller accepts multiple offers and none of these offers state that they are subject to the cancellation of the other offers. If both buyers then manage to meet all their conditions, the seller could find themselves in a position where they’ve got more than one buyer laying claim on the property. This scenario can become very messy and may lead to costly legal disputes. Therefore, it’s crucial to have the necessary clauses in place to prevent such complications and ensure a smooth transaction for all parties involved.

Recap

Communication is key when dealing with the 72-hour clause:

• Buyers: Make sure you’re in regular contact with your real estate agent and work fast to get your conditions fulfilled.

• Sellers: Work closely with your agent to understand the status of your offers and be transparent with all potential buyers.

Tips for Buyers:

• Have your financing pre-approved before you start house hunting to speed up the loan application once your offer is accepted.

• Be ready to act quickly if you get 72-hour notice.

• Stay in close contact with your agent.

Tips for Sellers:

• Keep marketing your property until you are sure it is sold unconditionally.

• Maintain clear communication with all parties.

• Work with your agent to manage offers efficiently.

It’s also important to read the wording of the 72-hour clause very carefully, as it can vary from one sale agreement to another. For example, the notice period could be 72 hours, or five days, or another timeframe. It could specify working days or simply calendar days. Make sure you understand the terms under which the seller can give the buyer notice and the procedure that must be followed.

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

Here is an EXAMPLE of a 72-hour clause:

Pending fulfillment of the suspensive conditions in this agreement, the SELLER shall continue to market the property until successfully sold and should, prior to fulfillment of this condition, a bona fida offer for the property be received (hereinafter referred to as the Competing Offer), in respect of which there are no suspensive conditions, or where such suspensive conditions have been fulfilled, and which the SELLER wishes to accept, the SELLER may do so subject to the following:

i.              A copy of the Competing Offer, together with proof of fulfillment of all suspensive conditions, shall be delivered to the PURCHASER by the Seller or his Agent, whereafter the Purchaser shall be given the option for 72 (Seventy Two) hours (excluding Saturdays, Sundays, public holidays) from delivery to fulfill all suspensive conditions in this Agreement and thereby binding himself unconditionally and declaring himself financially able to fulfill his obligations herein to purchase this property.

ii.            Exercise of this option by the PURCHASER shall exclusively by written notice be delivered timeously to the SELLER or his Agent, together with proof of fulfillment of all suspensive conditions.

iii.           Should the PURCHASER not timeously exercise the option aforesaid, the SELLER shall be entitled to accept the Competing Offer and, on acceptance thereof, this agreement between the SELLER and PURCHASER shall thereupon immediately and automatically become cancelled without prejudice to any party.

If you have any confusion about a 72 hour clause, read it carefully, and if you want advice please contact us and we’ll help you, and if we cannot help you we will refer you to an attorney who can.

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.

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