Escape clause

An escape clause is any clause, term, or condition in a contract that allows a party to that contract to avoid having to perform the contract.

If an agreement was drawn up for the sale of a house, for example, the purchaser could include some kind of escape clause in the contract, which will allow him to "escape" from the contract without being liable for breach of contract.

Real estate escape clauses

A "Subject to a builder's inspection to purchaser's full satisfaction" clause is one example of an escape clause. This clause effectively allows the purchaser to "escape" from the contract if an inspection reveals any irregularities or defects.

Another example is the "Subject to 30-day due diligence" clause, which effectively gives the purchaser a 30-day buffer period to inspect any and all aspects of the property before having to commit to the purchase.

A 72-hour clause is an example of a seller's escape clause that frequently appears in real estate contracts.

The finance contingency clause: Makes the purchase offer contingent upon the buyer and also the property qualifying for the loan the buyer will need

Escape clause abuse

Escape clauses, although fulfilling a real and sincere purpose in contracts of all kinds, have the potential of being abused.

For example, the "Subject to a builder's inspection to purchaser's full satisfaction" clause mentioned above can be abused if the buyer contracts a builder and instructs him to find some kind of fault in the property at any cost.

The buyer, in other words, takes advantage of the escape clause to cancel the agreement because he has buyer remorse, rather than because there is something wrong with the property.

Escape clause validity

Escape clauses that require a purchaser or an expert representing the purchaser to be satisfied with the goods or services being purchased have been attacked in lawsuits as invalid for lack of consideration. The argument is that a party can always escape such a contract by merely claiming to be unsatisfied. Therefore, there is no real requirement for that party to perform their obligations under the contract (to pay for the goods or services), and an agreement that only requires performance by one party is an illusory promise, void as a contract. Instead, such an agreement constitutes a gift from the performing party to the non-performing party.

Courts have generally held, however, that an escape clause containing a requirement of satisfaction nevertheless creates an enforceable contract, because a court could determine whether a claimed lack of satisfaction was entirely unreasonable, and therefore likely feigned to avoid the contract.

References

http://articles.latimes.com/1989-12-10/realestate/re-299_1_escape-clause

http://real-estate-law.freeadvice.com/real-estate-law/buy_sell_a_home/buyer_house_contract.htm