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Using a 72 hour clause in property purchase agreements

Sellers strive to obtain the highest price in the shortest period. In practice, property is often sold subject to a suspensive condition, the most common being that that the sale will be null and void if (for example) a loan is not obtained from a bank within fourteen days.

Sellers strive to obtain the highest price in the shortest period.  In practice, property is often sold subject to a suspensive condition, the most common being that that the sale will be null and void if (for example) a loan is not obtained from a bank within fourteen days. 

What happens however if cash or a bank approved buyer(s) appear on the horizon during the fourteen days?  A prospective cash buyer is effectively disqualified to purchase, due to the operation of the suspensive clause.  The seller runs the risk that the cash buyer may identify a suitable substitute property, whilst bond approval may not be obtained, leaving the seller high and dry in the end. 

One solution is incorporating a 72-hour clause to help mitigate the risk of losing prospective unconditional buyer(s).

The following is an example of a typical 72-hour clause:

“This offer is further subject to:

1. If the Seller receives at any time a bona fide unconditional offer to purchase, from a third party, then the Seller is entitled to give the Purchaser 72-hours (i.e. 3 full working days) written notice to comply with all the suspensive conditions contained in this offer to purchase within the aforementioned time.

2. If the Purchaser cannot comply with the abovementioned paragraph 1, then this offer to purchase is deemed cancelled.”

The 72-hour clause serves to mitigate the risk of losing prospective buyer(s).  The seller is entitled to call upon the purchaser to comply within 72-hours with all the suspensive conditions, if and when, a bona fide unconditional offer to purchase is received from a third party.  The seller maintains a bargaining position and the seller can guarantee an unconditional buyer that he will know within 72-hours if his unconditional offer is accepted or not.  The risk of losing an unconditional buyer is thus reduced.

Importantly though, the seller cannot demand of the purchaser to pay a higher purchase price, if the unconditional offer encompasses a higher purchase price. 

In summary: Property can be sold subject to suspensive conditions. Prospective buyers are effectively disqualified to purchase, whilst, the suspensive conditions are operational.  A 72-hour clause can however serve to mitigate the risk of losing prospective buyer(s).

February 6, 2012
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