Escape clause

Last updated September 10, 2024

An escape clause is any clause, term, or condition in a contract that allows a party to that contract to avoid having to perform the contract.

Real estate escape clauses

A "Subject to a builder's inspection to purchaser's full satisfaction" clause is one example of an escape clause. This clause effectively allows the purchaser to "escape" from the contract if an inspection reveals any irregularities or defects.^[1]^[2]

Another example is the "Subject to 30-day due diligence" clause, which effectively gives the purchaser a 30-day buffer period to inspect any and all aspects of the property before having to commit to the purchase.^{[ citation needed ]}

A 72-hour clause is an example of a seller's escape clause that may appear in real estate contracts.

The finance contingency clause makes the purchase offer contingent upon either the buyer or the property or both qualifying for the loan or mortgage the buyer will need.

Escape clause abuse

Escape clauses, although fulfilling a real and sincere purpose in contracts of all kinds, have the potential of being abused.^[2]

For example, the "Subject to a surveyor's inspection to purchaser's full satisfaction" clause mentioned above can be abused if the buyer contracts a surveyor and instructs then to find some kind of fault in the property. The buyer, in other words, takes advantage of the escape clause to cancel the agreement to buy because he has buyer remorse, rather than because there is something wrong with the property.^{[ citation needed ]}

Escape clause validity

Escape clauses that require a purchaser or an expert representing the purchaser to be satisfied with the goods or services being purchased, have been challenged in lawsuits as invalid for lack of consideration.^{[ citation needed ]} The argument is that a party can always escape such a contract by merely claiming to be dissatisfied. Therefore, there is no real requirement for that party to perform their obligations under the contract (to pay for the goods or services), and an agreement that only requires performance by one party is an illusory promise, void as a contract.^{[ citation needed ]} Instead, such an agreement constitutes a gift from the performing party to the non-performing party.^{[ citation needed ]}^{[ clarification needed ]}

Courts^{[ where? ]} have generally held, however, that an escape clause containing a requirement of satisfaction nevertheless creates an enforceable contract, because a court could determine whether a claimed dissatisfaction was or was not reasonable, and therefore feigned to avoid the contract.^{[ citation needed ]}

International trade institutions

International trade agreements tend to include at least one form of escape clause.^[3] Common escape clauses include countervailing duty penalties, antidumping statutes, national security exceptions, infant industry exceptions, balance of payment exceptions, and safeguard clauses.^[3] Escape clauses tend to be attractive in the drafting of trade treaties because they give political leaders flexibility to implement trade protection if there is domestic pressure to do so.^[3]

Related Research Articles

In law, conveyancing is the transfer of legal title of real property from one person to another, or the granting of an encumbrance such as a mortgage or a lien. A typical conveyancing transaction has two major phases: the exchange of contracts and completion.

This aims to be a complete list of the articles on real estate.

Real estate agents and real estate brokers are people who represents sellers or buyers of real estate or real property. While a broker may work independently, an agent usually works under a licensed broker to represent clients. Brokers and agents are licensed by the state to negotiate sales agreements and manage the documentation required for closing real estate transactions. Buyers and sellers are generally advised to consult a licensed real estate professional for a written definition of an individual state's laws of agency.

Right of first refusal is a contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transaction with a third party. A first refusal right must have at least three parties: the owner, the third party or buyer, and the option holder. In general, the owner must make the same offer to the option holder before making the offer to the buyer. The right of first refusal is similar in concept to a call option.

<span class="mw-page-title-main">Hire purchase</span> Form of arrangement

A hire purchase (HP), also known as an installment plan, is an arrangement whereby a customer agrees to a contract to acquire an asset by paying an initial installment and repaying the balance of the price of the asset plus interest over a period of time. Other analogous practices are described as closed-end leasing or rent to own.

In law, a warranty is an expressed or implied promise or assurance of some kind. The term's meaning varies across legal subjects. In property law, it refers to a covenant by the grantor of a deed. In insurance law, it refers to a promise by the purchaser of an insurance about the thing or person to be insured.

Real estate appraisal, property valuation or land valuation is the process of assessing the value of real property. Real estate transactions often require appraisals because every property has unique characteristics. The location also plays a key role in valuation. Appraisal reports form the basis for mortgage loans, settling estates and divorces, taxation, and so on. Sometimes an appraisal report is used to establish a sale price for a property.

A real estate contract is a contract between parties for the purchase and sale, exchange, or other conveyance of real estate. The sale of land is governed by the laws and practices of the jurisdiction in which the land is located. Real estate called leasehold estate is actually a rental of real property such as an apartment, and leases cover such rentals since they typically do not result in recordable deeds. Freehold conveyances of real estate are covered by real estate contracts, including conveying fee simple title, life estates, remainder estates, and freehold easements. Real estate contracts are typically bilateral contracts and should have the legal requirements specified by contract law in general and should also be in writing to be enforceable.

A standard form contract is a contract between two parties, where the terms and conditions of the contract are set by one of the parties, and the other party has little or no ability to negotiate more favorable terms and is thus placed in a "take it or leave it" position.

Gazumping occurs when a seller accepts a verbal offer on the property from one potential buyer, but then accepts a higher offer from someone else. It can also refer to the seller raising the asking price or asking for more money at the last minute, after previously verbally agreeing to a lower one. In either case, the original buyer is left in a bad situation, and either has to offer a higher price or lose the purchase. The term gazumping is most commonly used in the United Kingdom and Ireland, although similar practices can be found in some other jurisdictions.

Equitable conversion is a doctrine of the law of real property under which a purchaser of real property becomes the equitable owner of title to the property at the time he/she signs a contract binding him/her to purchase the land at a later date. The seller retains legal title of the property prior to the date of conveyance, but this land interest is considered personal property. The risk of loss is then transferred to the buyer – if a house on the property burns down after the contract has been signed, but before the deed is conveyed, the buyer will nevertheless have to pay the agreed-upon purchase price for the land unless the seller in possession or deemed in possession has failed to protect it. Such issues can and should be avoided by parties by stipulating in the contract who will bear the loss in such occurrences. The above rule varies by jurisdiction, but is the general rule.

A land contract,, is a contract between the buyer and seller of real property in which the seller provides the buyer financing in the purchase, and the buyer repays the resulting loan in installments. Under a land contract, the seller retains the legal title to the property but permits the buyer to take possession of it for most purposes other than that of legal ownership. The sale price is typically paid in periodic installments, often with a balloon payment at the end to make the timelength of payments shorter than in the corresponding fully amortized loan. When the full purchase price has been paid including any interest, the seller is obligated to convey legal title to the property. An initial down payment from the buyer to the seller is usually also required.

A buyer brokerage or buyer agency is the practice of real estate brokers and their agents representing a buyer in a real estate transaction rather than, by default, representing the seller either directly or as a sub-agent. In the United Kingdom and Australia, the most common term is buying agent.

Under Section 1031 of the United States Internal Revenue Code, a taxpayer may defer recognition of capital gains and related federal income tax liability on the exchange of certain types of property, a process known as a 1031 exchange. In 1979, this treatment was expanded by the courts to include non-simultaneous sale and purchase of real estate, a process sometimes called a Starker exchange.

A real estate transaction is the process whereby rights in a unit of property are transferred between two or more parties, e.g. in the case of conveyance one party being the seller(s) and the other being the buyer(s). It can often be quite complicated due to the complexity of the property rights being transferred, the amount of money being exchanged, and government regulations. Conventions and requirements also vary considerably among different countries of the world and smaller legal entities (jurisdictions).

Seller financing is a loan provided by the seller of a property or business to the purchaser. When used in the context of residential real estate, it is also called "bond-for-title" or "owner financing." Usually, the purchaser will make some sort of down payment to the seller, and then make installment payments over a specified time, at an agreed-upon interest rate, until the loan is fully repaid. In layman's terms, this is when the seller in a transaction offers the buyer a loan rather than the buyer obtaining one from a bank. To a seller, this is an investment in which the return is guaranteed only by the buyer's credit-worthiness or ability and motivation to pay the mortgage. For a buyer it is often beneficial, because he/she may not be able to obtain a loan from a bank. In general, the loan is secured by the property being sold. In the event that the buyer defaults, the property is repossessed or foreclosed on exactly as it would be by a bank.

The sale and purchase of ship is an important aspect of the shipping industry. It may involve large amounts of money and requires brokers to possess knowledge of types of vessels and their function, knowledge of maritime law, as well experience in bargaining. To reduce the number of disputes and smoothen the sale and purchase procedure, normally the ship-owner (seller) and the buyer will appoint brokers as middlemen to handle the transaction. There are three main stages for the sale and purchase of a ship which include: (1) the negotiation and contract stage, (2) the inspections stage, and (3) the completion. From different stages, it includes different important issues and regulations.

An asset purchase agreement (APA) is an agreement between a buyer and a seller that finalizes terms and conditions related to the purchase and sale of a company's assets. It is important to note in an APA transaction, it is not necessary for the buyer to purchase all of the assets of the company. In fact, it is common for a buyer to exclude certain assets in an APA. Provisions of an APA may include payment of purchase price, monthly installments, liens and encumbrances on the assets, condition precedent for the closing, etc. An APA differs from a stock purchase agreement (SPA) under which company shares, title to assets, and title to liabilities are also sold. In an APA, the buyer must select specific assets and avoid redundant assets. These assets are itemized in a schedule to the APA. The buyer in a SPA is purchasing shares of the company. In this case, itemization is not necessary due to transfer of company's ownership occurs as is. The APA is the legal mechanism for executing a corporate merger or acquisition.

The South African law of sale is an area of the legal system in that country that describes rules applicable to a contract of sale, generally described as a contract whereby one person agrees to deliver to another the free possession of a thing in return for a price in money.

Mortgage assumption is the conveyance of the terms and balance of an existing mortgage to the purchaser of a financed property, commonly requiring that the assuming party is qualified under lender or guarantor guidelines. All mortgages are potentially assumable, though lenders may attempt to prevent the assumption of a mortgage loan with a due-on-sale clause. Certain mortgage types are irrefutably assumable, such as those insured by the FHA, guaranteed by the VA, or guaranteed by the USDA. As of 2014, FHA and VA assumable mortgages make up approximately 18%, or one out of every six, mortgages in the United States.

References

1 2 Bruss, Robert J. (10 December 1989). "Escape Clause Vital to Avoiding Problems When Buying Home". Los Angeles Times. Retrieved 12 December 2017.
1 2 Bruss, Robert (5 September 1987). "Home Sellers, Be Aware Of Escape Clauses". Chicago Tribune. Retrieved 12 December 2017.
1 2 3 Rosendorff, B. Peter; Milner, Helen V. (2001). "The Optimal Design of International Trade Institutions: Uncertainty and Escape". International Organization. 55 (4): 829–857. doi:10.1162/002081801317193619. ISSN 0020-8183. JSTOR 3078617. S2CID 153595157.

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.

[latimes-1] 1 2 Bruss, Robert J. (10 December 1989). "Escape Clause Vital to Avoiding Problems When Buying Home". Los Angeles Times. Retrieved 12 December 2017.

[chitrib-2] 1 2 Bruss, Robert (5 September 1987). "Home Sellers, Be Aware Of Escape Clauses". Chicago Tribune. Retrieved 12 December 2017.

[:0-3] 1 2 3 Rosendorff, B. Peter; Milner, Helen V. (2001). "The Optimal Design of International Trade Institutions: Uncertainty and Escape". International Organization. 55 (4): 829–857. doi:10.1162/002081801317193619. ISSN 0020-8183. JSTOR 3078617. S2CID 153595157.

[1]

[2]

[3]