When an offer on a property is accepted, some other essential terms may be fleshed out in what is referred to as a Term Sheet or a Letter of Intent. These terms may include the amount of the downpayment, what contingencies may exist on the purchaser’s offer, when the closing is expected to occur and who the real estate agents/brokers and attorneys are.
Typically, the downpayment is a percentage of the purchase price. Should the purchaser default under the contract, the seller is usually entitled to retain the downpayment as damages. As a result, sellers prefer a higher downpayment and purchasers prefer a lower downpayment.
Contingencies may include an inspection contingency and/or a mortgage contingency, whereby the purchaser may have a right to terminate the contract and receive a return of the downpayment after the contract has been signed. The exact terms of any contingency plays a significant role on the purchaser’s ability to terminate the contract and receive a return of the downpayment so it is important for a purchaser to discuss any such contingency with their attorney. If a coop unit is being sold, approval by the coop board is a standard contingency. Likewise, if a condo unit is being sold, the condo’s issuance of a waiver of its right of first refusal to purchase the condo unit is a standard contingency.
The closing date set forth in a term sheet is typically defined as a certain amount of days from when a contract is signed. The phrases “on or about” and “time is of the essence” are essential terms that each party must be aware of. If the closing date in a Term Sheet (and in the subsequent Contract of Sale) is an “on or about” date, then the purchaser will have a cure period should the purchaser be unable to close on the transaction by the date set forth. If the closing date in the Term Sheet and corresponding Contract of Sale is followed by “time is of the essence”, then the purchaser’s obligation to close by the date set forth in the Contract is a hard deadline and is likely no opportunity for the purchaser to cure any failure to close by such date.