Megan’s Law: Can buyers terminate an Agreement of Sale?
The buyers made their offer contingent upon the outcome of a home/property inspection and one or two of the other standard inspections found in the PAR Standard Agreement (ASR).
Early in the contingency period, the buyers learned of a neighbor’s registration as a sex offender on the list published pursuant to Megan’s Law. This was all the buyers needed to know before concluding that they would not continue with their purchase. They contacted their agent and asked that she guide them in terminating the Agreement, “as was their right.” Or was it their right?
And to where do we turn for an answer? Go to the Agreement. Reading the Agreement provides an answer, though it doesn’t exactly smack one on the head. If we first turn to the contingencies, we find that there is not one standard contingency that expressly allows termination on the basis of the presence of a Megan’s list registrant within a given distance of the subject property. The Home/Property Inspection contingency makes reference to an inspection of “the Property’s structural components; roof; exterior windows . . . and any other items Buyer may select.” Is “any other item” qualified by the statement that buyer may examine “structural components”?
Reading all of the contingency provisions carefully does not reveal anything that gives the buyers the right to terminate the Agreement should the buyers discovery the presence of a Megan’s Law offender. And yet I hear you all telepathically screaming “who needs a reason; anyone can terminate the Agreement for any reason.” And that is almost true.
The ASR, given the appropriate checkmark and a little effort, can be easily terminated. A checkmark electing just about any of the contingencies will do. So what is the effort that is required? The effort is that you must undergo an inspection. Paragraph 12 (Inspection Contingency) indeed paves the way for buyers to terminate the Agreement “ . . . if the result of any Inspection elected in Paragraph 11(C) is unsatisfactory to Buyer . . .” A BUYER CANNOT TERMINTE THE AGREEMENT PURSUANT TO AN INSPECTION CONTINGENCY IF THE BUYER HAS NOT HAD THE INSPECTION!
True, many buyers will terminate an agreement on the basis of the Inspection Contingency without having the inspection. That is because the buyer provides advanced notice that the buyer will indeed find something to buyer’s dissatisfaction once the inspection is completed and the report issued. A prudent seller may permit the premature termination because the seller is interested in putting the property back on the market as soon as possible in order to attract a buyer that just might go through to settlement. Termination, without having the inspection must be agreed to by seller.
The buyer who discovers the presence of the Megan’s list registrant could surely find something in a home inspection report to use as pretext for terminating the Agreement of Sale. But if the inspections are not conducted or a buyer fails to articulate a proper reason for terminating the Agreement within the time, a buyer’s termination may not effectively terminate the Agreement.
Read the Agreement once, twice and thrice. Do not merely follow your assumptions. Determine that your assumption that the Agreement can be terminated is supported by the language in the agreement. As I have included so many times in these articles, there is no excuse for not knowing your agreement.
The other lesson to be taken is that a due diligence determination of the presence of Megan’s Law registrants should be completed before the Agreement of Sale is submitted as an offer. In the alternative, it should be completed before the buyer submits a response to the Inspection Contingency. My preference is that you do the former and not rely on the Inspection Contingency as a pretext to terminate.
Jim Goldsmith, Esq. is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels employers on employee relations issues as one of the voices of the PAR Legal Hotline.