Escape clause
Encyclopedia
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
.
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.
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.
s 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.
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
that allows a party to that contract to avoid having to perform the contract.
If an agreement
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
was drawn up for the sale of a house
House
A house is a building or structure that has the ability to be occupied for dwelling by human beings or other creatures. The term house includes many kinds of different dwellings ranging from rudimentary huts of nomadic tribes to free standing individual structures...
, 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
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
.
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 purchaserBuyer
When someone gets characterised by their role as buyer of certain assets, the term "buyer" gets new meaning:A "buyer" or merchandiser is a person who purchases finished goods, typically for resale, for a firm, government, or organization...
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
Sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....
.
A 72-hour clause
72-hour clause
A 72-hour clause, typically inserted in real estate sale contracts, is also known as an escape clause, release clause, kick-out clause, hedge clause or right of first refusal clause....
is an example of a seller's escape clause that frequently appears in real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
contracts.
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
Buyer's remorse
Buyer's remorse is the sense of regret after having made a purchase. It is frequently associated with the purchase of an expensive item such as a car or house...
, 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 lawsuitLawsuit
A lawsuit or "suit in law" is a civil action brought in a court of law in which a plaintiff, a party who claims to have incurred loss as a result of a defendant's actions, demands a legal or equitable remedy. The defendant is required to respond to the plaintiff's complaint...
s as invalid for lack of consideration
Consideration
Consideration is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a promise, the doing of an act, or even refraining from...
. 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
Illusory promise
In contract law, an illusory promise is one that courts will not enforce. This is in contrast with a contract, which is a promise that courts will enforce. A promise may be illusory for a number of reasons...
, 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.