Buyer’s Due Diligence Rights When No Due Diligence Fee Is Paid

QUESTION: I have just received an offer on one of my listings on the Offer to Purchase and Contract (form 2-T). In the blank for the due diligence fee, the buyer inserted  “N/A” and in the blank for the due diligence period, the buyer inserted a date that would create a due diligence period lasting approximately 2 weeks. Does a buyer who  doesn’t pay a due diligence fee have the right to terminate the contract for any reason or no reason prior to the end of the due diligence period? If so, has the buyer waived  that right to terminate by inserting “N/A” in the due diligence fee blank?

ANSWER: The answer to your first question is “yes.” The Contract and the very way in which it is organized anticipates that the 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. This is made clear in the definition of “Due  Diligence Fee” in the Contract. The last sentence recites “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,” and contains an express waiver by the seller of any right the seller may have to deny the buyer’s right to conduct due  diligence based on the absence or alleged insufficiency of any Due Diligence Fee.

As to your second question, we would interpret the use of “N/A” in the Due Diligence Fee blank of the Contract to be equivalent to inserting a zero in the blank, rather than as  expressing an intent by the buyer that the due diligence process, including the buyer’s right to terminate for any reason or no reason during the due diligence period, would  be not applicable. This interpretation is supported by the fact that the offer as presented includes a due diligence period of approximately 2 weeks. Having said that, in order  to avoid any argument, we believe that putting a zero in the blank is preferable to putting “N/A.”

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 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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