Release and Cancellation of Contract: What Does the Law Say?
The Release and Cancellation of Contract for Sale and Purchase may be used in the event parties agree to cancel an executed contract – but there are a variety of reasons you may not have a fully executed Release and Cancellation. Here are a few examples.
ORLANDO, Fla. – Florida Realtors® has many forms to assist Realtors in their transactions. One of these forms is the Release and Cancellation of Contract for Sale and Purchase, which may be used in the event the parties agree to cancel an executed contract, release each other (as well as the brokerages involved) from liability, and instruct any escrow agent as to disbursement of a deposit(s).
However, it’s important to note: Not all transactions that fail to close will have a version of this form in the transaction file. From a legal perspective, there can be a variety of reasons for not having a fully executed Release and Cancellation. Note that this article does not address any possible MLS rule regarding the necessity of a release and cancellation. (See Dear Anne article, “Release and Cancellation of Contract: What does the MLS say?”)
A few examples:
1. The contract addresses termination and release, and the parties simply choose not to sign one based on the circumstances
Here’s what I mean: Depending on the type of contract you have and the terms, it’s quite possible a Release and Cancellation form isn’t necessary.
For example, assume the parties have a Florida Realtors/Florida Bar “ASIS” Residential Contract for Sale and Purchase, and the buyer cancels during their inspection period. Let’s say they choose to do so on Day 8 of a 15-day inspection period, and the deposit isn’t due until after the inspection period ends. The language in Paragraph 12 of that contract states, in pertinent part, that in order for the buyer to exercise the right to cancel, the buyer “may terminate this Contract by delivering written notice of such election to Seller prior to expiration of Inspection Period … thereupon, Buyer and Seller shall be released of all further obligations under this Contract.”
What does this mean? All the buyer has to do here to cancel the contract is send written notice to the seller before their inspection period ends. That’s it. Written notice could be given in a number of ways, including in the form of an email.
Given the fact that there is no escrow to be released since the buyer cancelled before any deposit was due, there’s nothing the escrow agent should be instructed to release. If you’re the buyer’s agent sending over the written notice of cancellation to the listing agent via email, save that email to the file to show the buyer’s compliance with the contract. In this example, the seller may just move on to the next buyer.
2. The parties don’t agree on disbursement of escrow
In this example, the buyer sends over a Release and Cancellation to the seller indicating that the buyer is to receive the deposit back. However, the seller disagrees, crosses the buyer’s name out, and inserts the seller’s name as the party who should get the deposit.
There is no fully executed Release and Cancellation here as the seller made changes to the form the buyer sent over. Unless they can arrive at some agreement in this example, the Release and Cancellation does little with regards to the transaction other than show that the parties each felt entitled to the deposit. While this can be added to the transaction file as evidence of a disagreement, the form itself doesn’t hold much weight since the parties never arrived at an agreement.
If you are an agent faced with this scenario, make sure to point your respective customer(s) to the dispute resolution section of the contract for the next step if the parties can’t arrive at an agreement.
3. The parties are contemplating litigation
In this example, regardless of any escrow dispute, it’s possible that one (or both) of the parties is upset about the transaction and considering litigation.
If this is the case, the parties (or a party) could refuse to sign the Florida Realtors’ Release and Cancellation based on the waiver of liability section. If a party does sign this form and later decides to sue, execution of this particular form could present a legal barrier for that party.
In sum, while many transactions may contain a fully executed Florida Realtors’ Release and Cancellation form, there will be some that do not for a number of reasons. The important takeaway is to remember that not all transactions are the same, which can result in many different outcomes, including the use – or lack thereof – of a Release and Cancellation document.
You aren’t necessarily going to have all of the same documents in every single transaction and that’s okay! Keeping good records in those situations where there isn’t a Release and Cancellation, whether it be an email, text or written recap of a phone call, is a good business protocol in the event anything comes up later.
Meredith Caruso is Associate General Counsel for Florida Realtors
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