Otis Gets The Low-Down On Contract Changes

Dear Forms Guy: I’m sitting around doing nothing in particular and thought I’d check to see if you can tell me about the new changes to the Offer to Purchase and Contract. Sincerely, Otis

Dear Otis: Wastin’ time, eh? Sure, I’ll be happy to tell you about the changes. Are you by chance sitting on a dock someplace, Otis? Sincerely, Forms Guy

Otis: How’d you know?

Forms Guy: Oh, just a guess. The changes to the Offer to Purchase and Contract went into effect on July 1st. Permitted users will have 60 days from the effective date to begin using the new version.

Otis: Are there a lot of big changes?

Forms Guy: I would not describe any of the changes as “big.” For the most part, the changes are just to clarify a few things. For example, in paragraph 1(d) of the Contract, the term “good funds” has been replaced with “cash or immediately available funds.” The purpose of the change is to clarify that if the buyer has failed to deliver the Due Diligence Fee or Earnest Money Deposit by their due dates, or if any check or other funds paid by buyer have been dishonored, it will not be sufficient for the buyer, following notice from the seller, to simply deliver another personal check that has been made good or notify the seller that a previously-delivered check is now good.

Otis: Okay, that makes sense. Have any changes been made regarding fuel tanks? I was involved in a deal recently where the seller sold the fuel in a propane tank back to the fuel provider before settlement and the buyer claimed that the propane belonged to him because it was still in the tank at settlement.

Forms Guy: The laundry list of fixtures that are included in the purchase price are located in paragraph 2 of the Contract and include “fuel tank(s) whether attached or buried and including contents, if any, as of Settlement.” Therefore, in situations where a fuel tank and/or its contents are not going to convey as a part of the sale, it is very important that they be excluded from the sale by describing them in the blank space at the end of paragraph 2. In order to underscore the importance of identifying fuel tanks and/or fuel contents that are not going to convey, a new second sentence has been added to the “NOTE” at the end of paragraph 2 which reads as follows: “FUEL TANKS AND

ANY FUEL IN THEM WHICH ARE NOT TO CONVEY SHOULD BE NOTED IN THE BLANK ABOVE.”

Otis: How is a buyer supposed to know whether or not a fuel tank is owned or leased by the seller?

Forms Guy: Good question, Otis. A new item has been added to the buyer’s due diligence list in paragraph 4(b) of the Contract regarding inspections to determine the existence, type and ownership of any fuel tank located on the Property. Also, a new “Note” has been added advising the buyer, in cases where any fuel tank is leased, to check with the owner of the tank to determine the terms under which Buyer may lease the tank and purchase fuel.

Otis: Has any thought been given to adding something to the listing agreement about fuel tanks? It would be helpful if we could get information about any tank up front so that we could pass it along to agents for buyers.

Forms Guy: Yes. A new paragraph has been added to the “Seller Representations” section of the Exclusive Right to Sell Listing Agreement (form 101) regarding fuel tanks that may be located on the property. This should help the listing agent get information up front from the seller about any tanks on the property so that they may provide that information to a buyer’s agent.

Otis: Excellent. Are there any other changes to the Contract?

Forms Guy: Yes. A new sentence has been added at the beginning of the “Repair/Improvement Negotiations/ Agreement” paragraph of the Contract (paragraph 4(c)) to more explicitly communicate to the buyer and seller that absent agreement to the contrary, the property is being sold in its current condition. That sentence will read as follows: “Buyer acknowledges and understands that unless the parties agree otherwise, THE PROPERTY IS BEING SOLD IN ITS CURRENT CONDITION.”

Otis: Why was it necessary to add that to the Contract?

Forms Guy: Another good question, Otis. The Contract does not obligate a seller to make any repairs to the property. If a seller declines to make any requested repairs, the buyer can purchase the property in its current condition or termi- nate the contract. This was true under the old “Alternative 1” approach to repairs and it continues to be true under the new “due diligence” contract. Still, some sellers and their agents feel the need to insist on adding “as is” type language to the Contract to clearly evidence the seller’s intent not to make any repairs. Legally speaking, the addition of “as is” wording is unnecessary and may actually raise legal questions about intent of the parties since the term “as is” means different things to different people. This new sentence does not change the meaning of the contract, but it is hoped that it will help eliminate the perception that additional wording must be added to the Contract to establish a seller’s intent not to make repairs.

Otis: Anything else?

Forms Guy: New wording has been added in paragraph 7(f) of the Contract to make it clear that if the seller checks “yes” to any of the three representations about oil and gas rights, it does not relieve the seller of the obligation to convey title to the property free of defects or encumbrances unless the parties agree otherwise. Severed oil and gas rights would constitute a defect or encumbrance on the title. A new “Note” has been added at the end of paragraph 7(f) advising the parties to consult with a North Carolina real property lawyer of the effect that severed oil and gas rights will have on the use and enjoyment of the property and, if the parties both desire to proceed with the transaction, to recommend and draft appropriate changes and additions to the Contract.

Otis: Oil and gas rights should also be addressed in the listing agreement in my opinion.

Forms Guy: The Forms Committee agrees with you, Otis! Another new paragraph has been added to the “Seller Representations” section of the Exclusive Right to Sell Listing Agreement that includes the oil and gas rights disclosures that are now in the Contract.

Otis: That’s good. Something else—I’ve heard about a new lien law that went into effect earlier this year but I don’t know much about it. Will that have any effect on the Contract?

Forms Guy: Changes to the lien did go into effect April 1st. Briefly, the new lien law applies to projects to improve real property where the anticipated cost of the project at the time the building permit is issued is $30,000.00 or more. In such cases, the owner will be required to designate a “lien agent” to whom potential lien claimants will be required to give notice. A new sentence at the beginning of paragraph 8(e) of the Contract will obligate a seller who is covered under the new law to appoint a lien agent and to deliver a copy of the appointment to the buyer after the contract has been formed.

Otis: Whoa! Are you saying that any time an owner has made an improvement, he’ll have to appoint a lien agent?

Forms Guy: Not to worry, Otis. The new law does not apply to improvements to an existing single-family residential dwelling unit that is used by the owner as a residence. The lien law that existed prior to April 1st will still apply to projects that aren’t covered under the new law. Sellers of property who are covered by the “old” lien law will still be obligated under paragraph 8(d) to furnish the required lien waiver forms as they have in the past.

Otis: Where can I get more information on

the new lien law?

Forms Guy: For starters, you can check out the Forms Guy Q&A in the May/June issue of Insight, available by clicking on the following link: http://www.ncrealtors.org/uploads/MayJun13formsguy.pdf)

Otis: Is that all the changes?

Forms Guy: There are a number of other technical changes to the Contract, but let me mention one more. A new parenthetical has been added in paragraph 13 which specifically states that the 14-day permitted delay period applies not only to the original Settlement Date, but also to any new Settlement Date that the parties agree to in writing. This addition does not represent a change to the intent of paragraph 13, but the question has been raised a number of times about whether the 14-day period applied to an amended Settlement Date because it did not specifically say so. The new parenthetical should put that question to rest.

Otis: Speaking of rest, nothin’s gonna change unless I get moving. Thanks for the info, Forms Guy!

Forms Guy: Any time, Otis. I hope lots of deals come your way.

By BILL hOBBS LENDER LIAISON NORTh CAROLINA hOuSING FINANCE AGENCy