We’ve noticed an uptick in questions related to the Kick Out Clause, so here’s a brief overview on the contract rider. Comprehensive Rider X to the Residential Contract for Sale and Purchase, titled Kick Out Clause, creates additional rights and obligations for both sides.
For the sake of clarity, we’ll call “Buyer 1” the buyer under the first contract that contains a Kick Out Clause rider. We’ll also assume there’s only one back-up contract (even though the rider anticipates the possibility of more than one) and we’ll call the back-up contract “Contract 2,” which would be between the same seller and “Buyer 2.”
- Rider X begins by explicitly stating that seller has the right to continue showing the property, even though a seller is likely entitled to do so even without this language.
- It also provides that seller may enter into a bona fide back-up contract (Contract 2) with Buyer 2.
- Contract 2 will include Comprehensive Rider W, titled Back-Up Contract, or similar language that ensures Contract 2 is subject to termination of Contract 1 and won’t become effective unless Contract 1 is terminated.
- Seller will deliver a copy of Contract 2 to Buyer 1, with the purchase price and Buyer 2’s identity blacked out or obliterated.
- If Buyer 1 wants to continue under Contract 1, Buyer 1 must make the additional deposit described in the Kick Out Clause rider within 3 days after the seller delivers the copy of Contract 2. By making the deposit within 3 days, Buyer 1 waives contingencies for financing and the sale of buyer’s property (if applicable), and Contract 1 will move towards closing.
- If Buyer 1 fails to make the deposit within 3 days, Contract 1 terminates, and Buyer 1 should be refunded any deposits under Contract 1.
Is a contract with the Kick Out Clause rider a binding contract? Yes. It just has these additional steps that may come into play if the seller is successful in negotiating Contract 2. If triggered, Buyer 1 determines whether Buyer 2’s contract will ever become effective by deciding whether or not to make the additional deposit and waive the contingencies.
Can the property remain in an active status on the MLS when the seller is under a contract that contains this Kick Out Clause? Unless your MLS has a very specific rule or opinion to the contrary, the answer is no, since the seller is still bound by Contract 1.
Joel Maxson is Director of Member Legal Services
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