Can’t everyone just get along?

QUESTION: I’m dealing with a seller who refused to give my buyer the RPOADS and MOG disclosures before we made an offer. We ended up going under contract yesterday, and my client is refusing to pay the Due Diligence Fee until they get the disclosures. Since my client is refusing to pay the Due Diligence Fee, the seller is refusing to provide access to the property and is claiming that my client is in breach of contract. Can you give me any guidance on how to resolve this?

ANSWER: Sometimes buyers and sellers see a sale as more of a battle rather than a mutually beneficial transaction. While there is no sure-fire way to turn the temperature down, one way is to help the parties understand their obligations under the Offer to Purchase and Contract (Form 2-T).

The Seller’s Disclosure Obligation. It is true that the Residential Property Disclosure Statement (RPOADS) and the Mineral, Oil, and Gas Rights Mandatory Disclosure Statement (MOG) are required under North Carolina law for residential sales where the property has one to four dwelling units. Although the term “dwelling unit” is not defined in the Residential Property Disclosure Act, the North Carolina Real Estate Commission has supplied the following definition in the RPOADS: “‘Dwelling’ means any structure intended for human habitation.” While a seller is technically required to provide the RPOADS and MOG prior to receiving an offer, the consequence for not doing so is limited. As stated in paragraph 5(d) of Form 2-T, the consequence for not providing the disclosures is that the buyer will receive a three-day window to terminate in which the Due Diligence Fee is refundable rather than non-refundable. So long as the seller is willing to risk this outcome, the seller may refuse the disclosures.

The Buyer’s Obligation to Pay. The pre-printed standard language in Form 2-T states that the Due Diligence Fee (DDF) must be paid by the buyer “on the Effective Date.” The DDF must be paid to ensure that the buyer has the “right to terminate the Contract for any reason or no reason during the Due Diligence Period.” As we have written many times, if the buyer refuses to timely pay the DDF, then the buyer risks being in breach of contract, which would then trigger the seller’s right to keep any Earnest Money Deposit in addition to the DDF. Refusing to pay monies when due under Form 2-T comes with significant risk, and an agent should strongly recommend in writing that their buyer-client seek legal advice in these situations.

The Seller’s Duty to Provide Reasonable Access. The buyer’s right to conduct inspections begins on the Effective Date, and the seller must provide “reasonable access” for these inspections through the earlier of Closing or the buyer’s possession of the property. Form 2-T does not give the seller the right to refuse reasonable access, even if the buyer has not paid monies that are due. Instead, the seller has a right to make a demand in writing that the money be paid. Form 355-T can be used to make this demand. Once the written demand is made by the seller, the buyer has one banking day to pay, and if the buyer does not pay within one banking day, the buyer will be in breach and the seller will have the right to unilaterally terminate the contract.

In your case, it seems logical to start with an explanation to your buyer-client that the seller is entitled to refuse the disclosures, and that the DDF is due and payable if the buyer wishes to preserve both their right to terminate the contract during the Due Diligence Period and their right to terminate during the 3-day window the seller has provided them. Once your client begins to satisfy their contractual obligations, then they can put pressure on the seller to provide reasonable access. Your facts do not indicate that the seller has made a written demand for the money. Assuming that is the case, your client is not yet in breach of contract. However, it is important to note that when the disclosures are not provided, the DDF is refundable. Refundable is quite different from not payable. Your client’s refusing to pay therefore still comes with significant risk as explained above, and the buyer should consult with a lawyer. Once you have gone through these steps, hopefully the parties will have a much better idea as to whether they want to proceed or terminate.

Release Date: 5/2/2024