As a strange twist of contract logistics, the little “offer open for acceptance until” clause in the AREA standard purchase contracts has befuddled many people. Either leaving it blank, using it as a forced decision tool or ignoring the lapsing of the date altogether are a few of the ways I have seen this term abused over my career. Let’s take a few minutes to think about the reason this clause exists and how it is intended to be used.
Signal not a Mandate
Signs are a great and simple invention. When I am looking to visit a store in a shopping plaza at minus 40 degrees, I like to look from my car at the store and see the open sign before making the slippery and cold penguin shuffle to the door. The sign signals to me that the store is open, and I can shop, and in a similar way the “open for acceptance until” clause signals to the other party that the party offering or counter offering is open for negotiation.
What the open sign on the store does not mean is that if I enter, I must buy something before they turn off the open sign. I may buy, but I also may not, and if they choose to close the store before I buy, they have the right to do so, and I will have to come back another time.
This basic principle works the same way for the open for acceptance clause, no matter how tight the “open” time is for the offer or counteroffer, the other party is not obligated to make a deal in that time frame, it simply acts as a signal to the other party that time is important and the party offering intends to walk away from the negotiations at that time or they may choose to edit the date on a subsequent offer and keep negotiating. Using the clause is not intended to pressure a party into a contract and such tactics rarely result in a fun transaction.
Just a Worksheet
At the point of offer and counteroffer, the parties have not contracted together yet. That means the document you are negotiating on is just a worksheet until an agreement is made. Keeping this principle in mind, all conditions, dates, prices, and terms are all in a state of flux and are of no binding effect on the parties including in the use of the offer open for acceptance term. If an offer is made with a time open for acceptance time frame, a counteroffer may and should be made with an edit to that open for acceptance date and time to signal to the other party the continued willingness to talk things through. If an agreement is made between the parties even after the lapse of the open for acceptance date and time, the clause can simply be struck out or edited and initialled before legal obligations begin as detailed in the contract, this way the term does not affect the final version of the contract.
This is where the offer open for acceptance clause really shines. If a buyer client is writing an unconditional offer on a property, the seller simply needs to sign it for it to be legally binding upon the buyer along with all the consequences that come along with the sale. Imagine a situation where an unconditional offer is written and sent to the seller, but the seller sits on it for a few days without a response, so the buyer gets upset and buys a different property instead. If there is no natural end date for the validity of the offer itself, that seller could simply decide to sign it and send it back to the buyer and the contract would be in force and defensible. The addition of the date and time that an unconditional offer will be open for acceptance is crucial in protecting the buyer's interests in such cases, as well as the brokerage from the certain litigation that will follow if this were to happen.
Oops we missed itIn the heat of the negotiation, it is possible for the parties to miss adjusting the open for acceptance date on each subsequent counteroffer and ultimately the parties to sign a contract after the open for acceptance date and time has lapsed. This can create a legal challenge if one of the parties subsequently decides they want out of the contract and can point to this clause to say the contract was not valid. The best way to correct this error (and as quickly as possible) is to have the parties sign an amendment deleting that term from the purchase contract. Once the contract is signed it cannot be simply struck out but an amendment to the contract signed by both parties must be signed and added to the file to show the understanding and intent of the parties to transact together.
Due to the dynamic nature of real estate negotiations and the offer-counteroffer logistics, there are several variations of situations that can arise from the misuse of this standard clause in the contract. The key takeaway points are to use the clause with reasonable time frames for your party's interests, consider and edit the date on each subsequent volley of negotiations, and take one last look before the final pen or pixel, as it were, touches the document.
Provincial Practice Advisor
Bryan has many years of experience in the real estate industry including over 10 years as a former broker in the Edmonton Region.
Email: email@example.comPhone: 403-209-3619