Buyer’s Due Diligence Rights if the Due Diligence Fee is Zero

QUESTION:  I represent a seller. I just received an Offer to Purchase and Contract on Standard Form 2-T. In paragraph 1(d), on the line designating the Due Diligence Fee, the buyer inserted a zero. In paragraph 1(j), where the Due Diligence Period is defined, the buyer inserted a date that would equate to a roughly a three week due diligence period. If my client signs the offer, will the buyer have waived any right to terminate the contract prior to the end of the due diligence period by failing to offer or pay a due diligence fee?

ANSWER:  We answered this question once before, shortly after the introduction of the “due diligence contract” in 2011. However, we continue to hear the question fairly frequently. Therefore, our answer bears repeating.

The answer is that a buyer does not waive any due diligence rights by failing to offer or pay a Due Diligence Fee. The Contract and the very way it is organized anticipates that a buyer will have the right to conduct due diligence, and to terminate the contact prior to the end of the due diligence period, whether or not a due diligence fee is paid.

Paragraph 1(i) of the Contract defines “Due Diligence Fee” as “[a] negotiated amount, if any, paid by Buyer to Seller with this Contract for Buyer’s right to conduct Due Diligence during the Due Diligence Period.” The last sentence of the definition reads: “Buyer and Seller each expressly waive any right that they may have to deny the right to conduct Due Diligence… based on the absence or alleged insufficiency of any Due Diligence Fee, it being the intent of the parties to create a legally binding contract for the purchase and sale of the Property without regard to the existence or amount of any Due Diligence Fee.”

If the parties to a Contract desire to limit or eliminate the buyer’s right to do due diligence and/or terminate the contract for any reason or no reason during the due diligence period, it would require either the use of a different form, or significant modifications to the Contract that should be handled by a North Carolina real property attorney.

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