Understanding cash out or escape clauses in Agreements for Sale and Purchase...

A seller had their house on the market and received a conditional offer from a potential purchaser.

The purchaser’s offer included a condition that the offer was subject to the sale of the purchaser’s existing home within three (3) months.  The seller agreed to accept the purchaser’s offer on the basis that a cash out/escape clause was included.

Including a cash out/escape clause in an Agreement enables the seller to continue to market the property and consider accepting further offers.

What is a cash out/escape clause?

A  cash out/escape clause stipulates a period (for example, three working days) from the date the seller issues notice that the cash out/escape clause is activated for the purchaser under the conditional Agreement to confirm that their conditions are satisfied or waived.  Activating the cash out/escape clause essentially brings forward the purchaser’s conditions date.

When can a cash out/escape clause be activated?

A seller can activate a cash out/escape clause once accepting another offer (also known as a “back-up offer”) that the seller considers to be of better or equal value to the current conditional Agreement.

This clause might be activated when the seller receives an unconditional back-up offer, for example, as this will ensure that the property is sold to one or other of the potential purchasers.

What happens at the end of the cash out/escape clause period?

Suppose the first purchaser cannot confirm within the time period that their conditions are satisfied or waived. In that case, the Agreement will be cancelled, and the purchaser’s deposit will be refunded.  The back-up Agreement will then be fully in force and will proceed to settlement (if unconditional).

Purchasers who have a cash out clause in their draft Agreement should try to negotiate, before signing, for the time period to be as long as possible, so there is more time for their due diligence enquiries and satisfying the conditions.

You should always obtain legal advice from a legal professional before inserting a cash out clause into an Agreement for Sale and Purchase or signing an Agreement with such a clause included. This reduces the chances of being caught out by any sales not going ahead or any problems with the conditions.

Leading law firms committed to helping clients cost-effectively will offer a range of fixed-price Initial Consultations to suit most people’s needs for quickly learning about their options. At Rainey Collins, we have an experienced team who can answer your questions and put you on the right track.