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Weekly Q&As

Is a back-up buyer entitled to conduct due diligence before becoming the primary buyer?

Release Date: 05/30/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: A buyer with a back-up contract on my listing has requested permission to conduct due diligence on the property. I am uncomfortable with the idea of the back-up buyer doing inspections before the due diligence fee has been paid. But, even though the back-up contract is not primary, it is still a contract, and the effective date is still the effective date. The Back-up Contract Addendum (Form 2A1-T) addresses when the due diligence period will end, but as far as I can tell, the due diligence period still starts on the effective date with all due diligence activities being permitted for the back-up buyer.

Do I have to allow the back-up buyer access to the property to conduct due diligence?

ANSWER: No. Form 2A1-T states that neither party is obligated to perform until the primary contract terminates and the seller notifies the back-up buyer. This includes the seller's obligation to let the buyer perform due diligence. This is why the due diligence period in paragraph 9(b) of Form 2A1-T runs from the time the seller informs the back-up buyer that the primary contract has terminated through the number of days specified in that same paragraph.

It should be noted that payment of the due diligence fee is not a prerequisite to the due diligence period beginning under the contract. A contract becomes effective once all parties sign and such signing is communicated. If the due diligence fee is not paid, the buyer is in breach, and the seller is entitled to give notice of potential termination as provided at the bottom of page 1 and the top of page 2 of the standard form Offer to Purchase and Contract (Form 2-T).

And finally, as a practical matter, it is simply a very bad idea to let the back-up buyer on the property when the seller is under an obligation to deliver the property to the primary buyer in its current condition. If the back-up buyer were to cause any damage, the seller would have a complicated, and potentially expensive, legal problem.

 

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