Delivery of Due Diligence Fee by Effective Date of contract

QUESTION: In paragraph 1(d) of the new version of the Offer to Purchase and Contract (form 2-T), it states that the Due Diligence Fee has to be made payable and delivered  to the seller by the Effective Date, whereas before it just said it had to be payable to the seller by the Effective Date. Why was this change made? Won’t the buyer be in  breach of contract immediately if the listing agent notifies the buyer agent that the seller has accepted the buyer’s offer?

ANSWER: To answer your first question, the reason a “delivery” requirement was added to the payment of the Due Diligence Fee was to close the door on an occasional  argument that since, under the old version of the Contract, the Due Diligence Fee simply had to be “made payable” to the seller by the Effective Date, the Fee didn’t have to  be delivered to the seller within any particular time frame. This argument did raise a potential question about the seller’s right to terminate the contract on account of the  buyer’s failure to deliver the Due Diligence Fee because the seller’s right of termination is tied to the Due Diligence Fee not being delivered by its “due date” (see next-to-last  sentence in paragraph 1(d)). Thus, the addition of a specific delivery date, e.g., the Effective Date.

As to your second question, if the Due Diligence Fee is delivered with the offer, it will of course already be the possession of the listing agent or seller by the Effective Date.  However, even if the Due Diligence Fee isn’t delivered with the offer and the offer is accepted, we don’t think it is correct to characterize the buyer as being in breach of  contract. Time is not “of the essence” with respect to the delivery of the Due Diligence Fee. The contract is legally binding, subject to the seller’s right to terminate it if the  buyer doesn’t deliver the Due Diligence Fee within one banking day following the date the seller gives written notice to deliver cash or immediately available funds. The buyer  agent or the buyer should be prepared to get the Due Diligence Fee into the listing agent or seller’s hands promptly upon notice that the offer has been accepted. This can be accomplished by the buyer leaving a check for the Due Diligence Fee with the buyer agent to deliver upon notice of acceptance of the offer, or, if the buyer is out of town, the  buyer can overnight the check promptly upon notice from the buyer’s agent that the offer has been accepted.

There was discussion about adding an option permitting delivery of the Due Diligence Fee within five days of the Effective Date. However, there was a practical concern  expressed that the longer the buyer is given to deliver the Due Diligence Fee, the greater the possibility of the buyer changing his or her mind about buying the property and  the seller not getting the Due Diligence Fee at all after having effectively taken the property off the market when it went under contract. Although the seller could sue the buyer for the Due Diligence Fee, that’s rarely a practical solution.

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