Kick Out Clauses in Residential Massachusetts Real Estate Transactions

In a white hot real estate market, Sellers of residential real estate on the Northshore of Massachusetts have adopted a new contractual provision to counter a Buyers’ request for an existing home sale contingency. Typically, a potential Buyer of a residential property that presently owns another property, will be required, for financial reasons, to sell their existing home in order to purchase the replacement home. The reason is simple: Most homeowners do not want to carry the mortgage, property insurance and taxes for two homes, and any mortgage lender will require that Buyer sell the existing home to satisfy loan underwriting requirements.

Therefore, Massachusetts homebuyers that are looking to upgrade or downsize their home, will likely request that a Seller of real estate agree to a prior sale contingency. In other words, if the Buyers fail to sell their existing residence prior to the closing date or some other date set by the parties, the Buyers then may terminate the transaction and receive a full refund of their deposit.

Sellers are now countering a home sale contingency by inserting their own contingency clause in a purchase and sale agreement. A “kick out” clause will permit a Seller to continue to market the property for sale to other prospective purchasers while the property. If the Sellers receive an offer for an amount equal to or that exceeds the existing and agreed to purchase price (and no prior sale contingency), the Sellers will then have the right to demand that the Buyers waive the home sale contingency, otherwise, the Sellers may terminate the transaction. In this instance, the kick out clause will provide the Sellers an escape hatch if they are able to find Buyer for the property that are willing to pay a greater price and waive any home sale contingencies. This is not a desirable position for any homebuyer since the Buyer will not only lose the right to purchase the property, they will likely have to start the home buying search again and may lose their interest rate lock set by the lender.

If you are presently negotiating a purchase and sale agreement it is important that you retain experienced legal counsel that is skilled at limiting the scope and applicability of kick out clauses. Northshore Legal LLC has seen many poorly drafted kick out clauses that impose strict limitations on Buyers and provide the Sellers with expansive rights. These kick out clauses often appear in counter offers from the Sellers to the Buyers on Standard Offer to Purchase Real Estate forms, and are often drafted by real estate agents that have little experience in such clauses. If you received a counter offer that contains a kick out clause and require assistance with your real estate transaction, please contact one of our attorneys at Northshore Legal at 781-463-6063.