In a real estate purchase transaction, when the due diligence period is winding down, Buyer has a decision. Typically, the decision is to: (1) waive contingencies and proceed with the purchase, or (2) disapprove of the contingencies, terminate the transaction, and obtain a refund of the deposit. The AIR CRE Purchase Agreement provides Buyer with a different option: disapprove of a contingency without terminating, and provide Seller with an opportunity to cure Buyer’s disapproval.
Below is a summary of the disapproval procedure and the back-and-forth procedure triggered by a disapproval:
Step 1: Buyer’s Disapproved Item: Prior to the expiration of a contingency, Buyer may deliver a notice disapproving of such contingency, which becomes the “Disapproved Item.”
Step 2: Seller’s Election Whether To Cure: Within 10 days after the disapproval notice, Seller may elect to cure the Disapproved Item.
Note: If Seller fails to respond within 10 days, Seller is deemed to have elected not to cure.
Step 3: Buyer’s Decision: If Seller does not elect to cure the Disapproved Item, Buyer has a decision: (1) proceed with the purchase of the Property even though Seller will not cure the Disapproved Item; or (2) terminate the Agreement and receive its Deposit. Buyer has 10 days to make this decision.
Note: The 10-day decision period begins from when Seller informs Buyer that it will not cure, or if Seller was silent, then from the end of Seller’s 10-day election period.
Exception To 3-Step Procedure: Hazardous Substance Conditions and Financing Contingency: The 3-step process described above applies in most situations. However, Paragraph 9.3 provides that Seller’s right to cure does not apply to: (1) remediation of Hazardous Substance Conditions; or (2) the Financing Contingency. Instead, if Buyer issues such a disapproval, it could be interpreted as Buyer’s intention to terminate the Agreement.
Excerpt From Paragraph 9.3 of AIR CRE Purchase Agreement
9.3 If any of Buyer’s Contingencies or any other matter subject to Buyer’s approval is disapproved as provided for herein in a timely manner (“Disapproved Item“), Seller shall have the right within 10 days following the receipt of notice of Buyer’s disapproval to elect to cure such Disapproved Item prior to the Expected Closing Date (“Seller’s Election“). Seller’s failure to give to Buyer within such period, written notice of Seller’s commitment to cure such Disapproved Item on or before the Expected Closing Date shall be conclusively presumed to be Seller’s Election not to cure such Disapproved Item. If Seller elects, either by written notice or failure to give written notice, not to cure a Disapproved Item, Buyer shall have the right, within 10 days after Seller’s Election to either accept title to the Property subject to such Disapproved Item, or to terminate this Agreement. Buyer’s failure to notify Seller in writing of Buyer’s election to accept title to the Property subject to the Disapproved Item without deduction or offset shall constitute Buyer’s election to terminate this Agreement. The above time periods only apply once for each Disapproved Item. Unless expressly provided otherwise herein, Seller’s right to cure shall not apply to the remediation of Hazardous Substance Conditions or to the Financing Contingency. Unless the Parties mutually instruct otherwise, if the time periods for the satisfaction of contingencies or for Seller’s and Buyer’s elections would expire on a date after the Expected Closing Date, the Expected Closing Date shall be deemed extended for 3 business days following the expiration of: (a) the applicable contingency period(s), (b) the period within which the Seller may elect to cure the Disapproved Item, or (c) if Seller elects not to cure, the period within which Buyer may elect to proceed with this transaction, whichever is later.