Refund of Due Diligence Fee in New Condo Sale

QUESTION: I’m representing a developer who listed all the units in a new condominium complex with my firm. We negotiated a contract for the sale of one of the units five  days ago using the Offer to Purchase and Contract (form 2-T). The buyer’s agent has just delivered a written notice of termination of the contract by the buyer. The buyer is  demanding a refund not only of the earnest money deposit but also of the due diligence fee that was paid. I know the buyer is entitled to a refund of the earnest money  deposit, but I thought the due diligence fee was non-refundable. Does the seller have to refund the due diligence fee too?

ANSWER: You are correct that the due diligence fee is generally non-refundable. However, the transaction you describe involves the sale of a new condo, and Section 47C-4-108 of the North Carolina Condominium Act gives the buyer of a new condominium an absolute right to cancel the contract at any time during a seven calendar day period  following the execution of the contract. Section 47C-4-108 further provides: “Cancellation is without penalty, and all payments made by the purchaser before cancellation shall be refunded promptly (emphasis added).” The word “payments” is not defined in the Act, but giving the word its natural meaning, we would interpret it to include the due  diligence fee. Assuming our interpretation is correct, your seller would be required to refund the due diligence fee since the buyer terminated the contract within the seven day cancellation period.