With the property market appearing to be more of a “buyers” market at present and purchasers wanting more time in which to complete their investigations into properties, what would a “cash out”, “escape” or “rollover” clause mean for both a vendor and purchaser?
This type of clause, commonly referred to as a “cash out”, “escape” or “rollover” clause, is inserted into an Agreement for Sale and Purchase of Real Estate and enables a vendor to give notice to a purchaser that the vendor has entered into another agreement. This second agreement is called a “back-up” agreement.
When the vendor gives notice to the first purchaser, that purchaser then has a required amount of time (usually three or five working days) to declare the existing agreement unconditional or it will be cancelled after the expiry of the time period.
An example of a “cash out”, “escape” or “rollover” clause is:
“If, before this agreement becomes unconditional, the vendor receives an offer for the property on terms and conditions which are, in the vendor’s opinion, no less favourable to it than those in this agreement, then the vendor may serve on the purchaser a notice requiring the purchaser to advise within three working days after service of the notice, whether all conditions for the benefit of the purchaser have been satisfied or waived and the agreement is unconditional in all respects. If the purchaser does not notify the vendor within three working days, this agreement is terminated and at an end, and the deposit shall be refunded to the purchaser.”
Cash out clause when you are the vendor
If you are selling a property and the purchaser requires long condition times, for example they need to sell their existing home first, then it would be beneficial for you to have a cash out clause inserted into the agreement.
If you then accept a back-up offer you can give the first purchaser notice to declare the agreement unconditional without having to wait until the conditions fall due under the first agreement, which could be some time.
However, a vendor may not wish to give notice to the first purchaser under the cash out clause provision unless the back-up offer is unconditional in all respects. This will ensure that a vendor will sell to at least one of the purchasing parties.
Cash out clause when you are the purchaser
If you are purchasing and the vendor wants to include a cash out clause in the agreement, then from a purchaser’s point of view, it would be beneficial to have the timeframe in which a purchaser must declare the agreement as unconditional under the clause, as long as possible.
It is usual for the time period to be three working days however if the vendor agrees, it would be better for the time period to be between five-seven working days. This will give a purchaser longer to satisfy the remaining conditions. Alternatively, if a purchaser needs to sell, this longer time period may give a purchaser the chance to look into bridging finance or find a buyer for their property.
Checking agreement prior to signing
If you agree to have a cash out clause inserted into an agreement, then we recommend having your lawyer check the drafting of the clause so you are aware of the implications if the clause is activated.
If you have any questions relating to cash out clauses, or anything else included in this article, please contact the Private Client Team