Failure to Check the Correct Box on the Termination Form

QUESTION: Yesterday was the last day of the Due Diligence Period for one of my buyer-clients, and of course my client informed me late in the afternoon that they no longer wanted to purchase the property. I quickly sent over Form 350-T (Termination of Contract (Form 2-T) by Notice to Seller from Buyer) for my buyer to sign, and I barely got the termination submitted to the listing agent before the 5:00 p.m. deadline.

Today, the listing agent is claiming that the contract is not terminated because instead of checking the box indicating that my buyer was terminating as of right during the Due Diligence Period, I accidentally checked the box indicating that the property was not in governmental compliance when there were no compliance issues. Is the listing agent correct? Can my client get their Earnest Money Deposit back?

ANSWER: We believe that the contract was timely terminated during the Due Diligence Period, and your client should receive a refund of their Earnest Money Deposit.

Form 2-T, the Offer to Purchase and Contract, states that the contract may be terminated by a buyer’s “delivering to Seller written notice of termination (the “Termination Notice”) during the Due Diligence Period (or any agreed-upon written extension of the Due Diligence Period), TIME BEING OF THE ESSENCE.” No particular kind of written notice is required, and using a standard form to terminate is not mandatory, even though it is strongly recommended. The only requirements for the Termination Notice are that the notice (1) be in writing and (2) evidence a clear intent to terminate.

Form 350-T is a unilateral termination form. Unlike Form 390-T (Termination of Contract by Mutual Agreement with Release of Earnest Money Deposit), Form 350-T does not require both parties to sign to effectuate a termination. Instead, the pre-printed language in paragraph 2 of Form 350-T states that “Buyer hereby terminates the Contract for the following reason(s) . . .” This preprinted language, standing alone, is enough to satisfy the requirements for the Termination Notice. While checkboxes with reasons in Form 350-T are often helpful to the parties in winding up a transaction, they are not required or necessary for purposes of termination under Form 2-T.

Once the listing agent received your Form 350-T, the contract was terminated, regardless of what reason was given in the checkboxes. The result would be the same if your client signed a Form 350-T and delivered to the seller with no boxes checked at all. Since the contract was timely terminated by Form 350-T, the Earnest Money Deposit should be refunded to your buyer. You can read more about the difference between Forms 350-T and 390-T in this Q&A.

Release Date: 1/18/2024

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