Legal Q&A: Contracts

Q: The Broker at my agency is the "seller" of units in a 4-unit condo in DC which has not yet been completed. There are no condo documents and no Public Offering Statement yet. One of my clients wanted to purchase a unit in this condo, but couldn’t do so. As a result, the Broker wants to change the listing to "active," even though there are "back-ups" for that unit. The broker also wants a commitment letter from anyone who has already signed the "non-binding reservation agreement." I thought this was not necessary when there was no contract. Can a commitment letter be requested or required when there is no contract on a unit?

A: There are "commitment letters" and there are "commitment letters." No lender will provide a firm, binding commitment letter unless there is a binding contract, and the lender has the opportunity to appraise the property. The first "commitment letter" is merely what I call a "comfort letter." This just says that the lender has pre-qualified the buyer for a particular loan, but that it not a firm, binding commitment until the property has been appraised. There is no reason why a lender cannot provide the "comfort letter."

There is a reason, in my opinion, why you should be careful with this listing. Under DC law, a seller may NOT sign any contract until the Public Offering Statement has been approved by the District Condominium office. It could be argued that treating the condos as "for sale" is a potential violation of the DC condo act.

Q: My seller’s property (an estate) "failed termite inspection." Since the property is being sold "as is," is the seller (the estate) responsible for repairs?

A: When you state that the property is sold "as is," what is the basis for that statement? If you used the GCAAR "Addendum of Clauses," paragraph 3 relating to "as is" specifically deletes the termite clause from the contract. If you did not use that form, or if you did not delete the termite clause, a strong argument can be made that the seller is obligated to make the necessary repairs. However, if the seller is the personal representative of the estate and did not reside in the property, the seller does not have to provide the DC Seller’s Disclosure form to any buyer.

Q: I have a contract for the purchase of a cooperative apartment. The original stock certificate – which is needed to establish ownership – has been lost. The cooperative board of directors is insisting that the Seller take legal action to quiet the title, which takes 3-6 months. Settlement was originally set for mid -May per the contract, but an extension to mid- June was agreed to by both parties. It is now early July.

The questions are:

1) My understanding of paragraph 19 of the Regional Contract is that after settlement has been delayed 10 business days, and given the fact that the title issue will not be remedied within 30 days, either the seller or the purchaser can unilaterally declare the contract void. Is it true then that simply a notice from one party to the other can void the contract or must both parties sign a release?

(Answer): I read para 19 to state that since the title problem cannot be resolved within 30 days, then the buyer can unilaterally terminate the contract. Getting back the good faith earnest money is another issue -- and that would require both buyer and seller to sign the release. You are in a dilemma; does the buyer still want to buy the cooperative apartment? If so, many coops will allow a sale to go forward so long as the seller has actually instituted the quiet title lawsuit which some coops say is necessary when the ownership document is lost or missing.

2) Does the purchaser have any recourse, other than a return of the deposit, such as suing for specific performance or collecting damages for any expenses and "emotional stress" as a result of the seller and/or listing agent offering the property for sale and accepting an offer without first verifying the existence of the stock certificate?

(Answer): Not really. He can’t sue for specific performance because the seller at the present time can’t convey. If the buyer really wants to buy the property, he can try to negotiate with the seller stating that he has the right under para 19 to terminate but if the price is renegotiated, he will wait.

3) If the purchaser accepts the seller’s offer to occupy the property prior to settlement and is later forced to vacate due to failure of the seller to obtain title, does the purchaser have any recourse as far as reimbursement of moving expenses, etc.?

(Answer): Legally, no. You are correct that the purchaser assumes the risk. But that should not stop the buyer from trying to negotiate some favorable terms if the seller is agreeable.

Q: I have a four-unit building and have a signed "Letter of Intent to Buy" between both seller and buyer. Can this be attached to the "Tenant Notices with a Third Party Contract" and mailed in order to start the waiting period, or do I have to wait for an actual contract to be drawn up before sending out the Tenant Opportunity to Purchase (TOPA) notices? If the letter of intent notice is OK, do I then have to send a secondary notice once a contract is in place, or does the first notice suffice?

A: I do not consider a Letter of Intent as a binding contract for sale. As you may know, there are three categories of rental housing for TOPA purposes: (1) single family; (2) 2-4 unit buildings; and (3) over 4 unit buildings. In each category, there are two forms: (1) TOPA notice without a third party contract; and (2) TOPA notice with a third party contract. If you were to use the first form, you would then have to send the final contract to the tenants when it has been finalized. Accordingly, I would just wait until you get a final contract and then send the second TOPA form (i.e. with a third party contract).

Q: I am the listing agent for a seller in DC and was approached personally by a prospective buyer, who signed a "generic" contract that covers none of the DC laws, regulations, etc., and also doesn’t cover disclosure or inspection issues. How does this affect my office and what, if any, ethics issues may be relevant?

A: I am surprised that you were not involved in the presentation of the contract to the seller. You are the listing agent for the seller and in this capacity have a fiduciary duty to (1) make sure that the seller has signed the appropriate documents consistent with DC law (although you cannot function as an attorney), and (2) to protect the seller. If the sales contract does not comply with DC requirements, that could give the buyer the right to back out of the contract at the last minute. I recommend that you immediately advise the seller that he should enter into a corrective contract using the same terms and conditions, only using the proper forms.

Q: If a seller sends "the last condition of an agreement" to a buyer via e-mail and the buyer agrees and then initials that in the contract, is that contract considered binding?

A: Look at paragraph 9 of the DC jurisdictional addendum, entitled "Notices." E-mail communication is acceptable if it includes an attachment with an actual copy of the executed instruments being transmitted. If I understand your situation, the seller sent the buyer an e-mail saying "this is what I want," the buyer agreed, incorporated what the seller wanted in the contract, and initialed the contract. In my opinion, this is a valid, binding contract.