When can buyers exercise their termination option in a backup contract?

If your buyers have a backup contract with a termination option, Paragraph D of the Addendum for “Back-Up” Contract (TAR 1909, TREC 11-7) explains the start and end of that option period.

The addendum says that the time for giving notice of termination begins on the effective date of the backup contract. It continues without restriction until the amended effective date of the contract—the day your buyers receive notice of the first contract’s termination. At that point, the option period lasts for the time indicated in the contract.

For example, the effective date of your buyers’ backup contract with a 10-day termination option is December 1. If they become the primary contract on December 15, they have the unrestricted right to terminate from December 1 until December 25.

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9 Responses to When can buyers exercise their termination option in a backup contract?

  1. It would help a lot to understand changes to forms and contracts to write a brief statement on why the change is needed and what the change is intended to accomplish. Another way to put itwhat problem is this change fixing.

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  2. Sandra Lehner says:

    If a contract has expired and the buyer will noy sign a release how long,can buyer tie up property. Seller hzs signed termination and released earnest money to buyer bit buyer will not sign.

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    • Henry Carmona says:

      Sandra,
      Buyer cannot tie up the contract once contract has expired, but they can tie up the release of Earnest Money. They are only hurting themselves since it is their Earnest Money that is being held in escrow.

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  3. Tony Romero says:

    In my opinion, if a Buyer has signed a Termination, the contract is not tied up – it simply becomes a dispute over Earnest Money. How could a Buyer terminate and have any claim to the property? It makes no sense…

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  4. When a buyer and seller enter into a backup contract and use the (TREC or TAR?) promulgated backup addendum to the contract, the buyer’s option period begins when all parties sign the contract and continues throughout the backup period. If the first contract with the seller terminates, the backup contract AUTOMATICALLY becomes effective, and the buyer’s option period then continues for the number of days specified in paragraph 23. So to answer your question, a buyer who entered into that backup contract can terminate anytime before the contract becomes effective, and anytime before the paragraph 23 days are up, should the prior contract terminate. Keep in mind that if a buyer enters into a backup contract, the option fee and earnest money are still payable when all parties sign! This frequently results in buyers opting to keep any backup position less formal than a full-fledged backup contract.

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  5. Don Eichler says:

    Having spent 45 years in this business the biggest problems are the fact that our contracts and requirements are way over engineered. I sure do miss the days of less paper work and changes to our real estate laws and rules.

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    • David Kelsch says:

      Don,
      The good old days had many more lawsuits. Many, if not most, of the changes created by the Broker-Lawyer Committee have helped protect EVERYONE from lawsuits, By everyone, I mean buyers, sellers and Realtors.
      David Kelsch

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  6. Summer Carter says:

    So the option money is lost either way with the back up contract, even if the first contract never terminates? Only Earnest Money is refundable at that point. Doesn’t make sense to me why Option Money is owed, if no option period is ever encountered being the second contract.

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