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A "death" clause in a sales contract
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My neighbor is selling her apt., and plans to move to a rental until she finds something else, but her lawyer just presented her with the buyers lawyers clause that allow her to lose the deposit if one of the two people on the sales contract (a married couple) dies prior to closing.

Well, she is hesitant to signing another lease if she has to agree to that or she will be financially on the hook for a years rent. Obviously the chances of her lining up a closing date,and the exact start of a new lease are almost impossible to do in this town unless you want to settle for anything.

I've never heard of this before, but her lawyer says he has encountered this in the past, this "death" clause.

If g-d forbid one of the buyers should die, she would need to put her place back on the market again and would have nothing to cover her legal fees and anything else she incurred to try to close on her apartment.

She is not a street easy member, so I told her I would let her know what some of you have to say about this.

Is this common legal practice when buying/selling an apartment for the buyer to ask for?

Many thanks.

In the 25 years i have been selling real estate I have encountered this clause only twice. Thankfully, no one passed away. However, I did have a deal where there was no clause and unfortunately one of the people did die prior to the closing. It was a coop and the remaining purchaser could not pass the board without their partner so it was a moot point (also the sellers felt they could not force the sale under those circumstances) So I would advise the seller to discuss with her attorney, however, I would take my chances and not sign a lease until they have passed the board

thanks oldbroker.....in this case it is a condo and no board approval, but it still sounds risky for a seller to accept a clause like this in the agreement. The chances are slim that one of the potential ownwers would die, but who would ever have predicted that 9/11 would have occured, that there would be a massive earthquake in Japan, etc.

I never expected in a million years that my cruise to Mexico would have been canceled to the swine flu outbreak, losing my money as the cruise line only offered us a re-schedule that I couldn't use! Things come up in life that you never expect, so why should any seller take a risk of losing about $ 75,000.00 if this "death clause" is not standard and customary. In your case it was not.

That's my neophytes opinion and I thank you for your comments and look forward to reading more. You can learn alot on this board!

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I understand your comment alanhart but if the risk is too great (in her financial situation it is), to lose the deposit and a catasrophe like this should happen, this is all about what the buyers want and not what the seller wants.

I don't think I would be willing to gamble, I asked her for starters about the health of the buyers, to which of coursse she said "she doesn't have a clue".....and why would she....

This is a touch decision I would think, but I am advising her to see if it can be struck from the sales agreement or think about turning the deal down, she is not desperate to move, she just wants to live in an entirely different area of town....

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Hi Columiba county, I hope you are right, she had a "cash" deal going so everything was going so smoothly until she told me about this "road bump"......

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No lawyer or realtor here, but the buyer's dying is THEIR concern, don't try to make it mine!

It's not like they're going to die to spite your neighbor. I wouldn't worry too much about it. They want the seller to assume the risk of an untimely demise for what? 2 or 3 months at the most? It would probably take her that long to find a new buyer if she balked.

I intend to agree with you drdrd, and my neighbor the seller does not have to sell, is not financially desparate, thats why I am thinking more conservatively like you are. I am also thinking if the buyers don't give in by removing that clause, or modifying somewhat in the sellers favor, then perhaps the buyers aren't that anxious for the new apartment anyway or are trying to get their way out of the deal.

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if, as you say, this is a cash deal, and no board approval required as it is a condo, I would think this would be an acceptable risk as I do not see any impediment to a delayed closing.

thanks KISS, but how is it acceptable if one of the new owners dies and the seller (my neighbor) forfeits $ 75,0000.00 and has to sign a years lease ahead of time that puts her on the hook for at least $40- $ 45,000 and she is left with an unsold apartment? What makes this accepatable unless you are very wealthy?

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KISS, the closing could take place in 4-6 weeks but what precludes a bus from running over one of the potential owners, hours after the signing takes place? G-d forbid that should happen, but it only takes a moment............

OK, what if a bus ran over the owner? Then what? would the buyer still be able to close with a seller's power of attorney? Or, would the buyer have to wait for all the formalitys of probate or whatever?

damier,

sorry I was not clear above -- have your friend push for an expedited closing in consideration of accepting such a clause.

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Hi Bill7284- Yes, I know for a fact that if the bus ran over the owner, the owner's power of attorney/estate MUST sell to the buyer if the owner dies and the apartment is in contract. The owners estate will finish the deal and whatever income is derived from the sale will follow the owners instructions in the owners will. (of course if the buyer defaults, the owners estate would retain the deposit).

It doesn't exactly seem fair to me for the owner (or should I say deceased owner), while the buyer appears to be protected and not lose their deposit............

But who said life is fair?

Look at it from the buyers' standpoint--they don't want to lose their 10% deposit if one of them were to die during contract. It seems fair that they want to protect themselves this way.

Daimier, your friend wouldn't be out of much. She would have to refund the deposit, and she would have to break a lease (not so hard if you never even moved in.) Why doesn't she negotiate a refund minus legal fees/non-refundable moving fees?

Hi again KISS,

Condo boards still require a package to be submitted and processed by the managing agent, so it still takes up to a month , I am told to get the paperwork reviewed and processed, but it's worth a shot, I don't know when her new lease starts, so the closing/new lease need to be at the same time if this "death clause' if in effect, which is almost impossible to make happen. But I will tell her to ask about an expedited closing from the building and the lawyers solely due to this contract clause, that I think needs to go away.

Aren't you concerned that your bad advice may cost her her buyers?

Hi Maly,

I am not represting my opinion to her as the gospel,hardly, I told her she has to work it out with the lawyers. I was asked my opinion thats all and I gave it, and told her I would send her the "street easy comments" which are about 50/50 on the buyer side and 50 % on the seller side right now.

Your idea of her negotiating a refund minus her legal fees less anything she has out of pocket on the new place if/until the landlords let her out would be a fair compromise and a good idea Maly. I will be sure she reads that. thx.

A deposit is to to ensure a buyer's good faith in intention to purchase. Of course there are variables that are negotiated as to how, what, why and when are closing will or won't occur.
This is one of them.
IMHO a mountain out of a molehill and this clause is a bit more practiced than indicated on this thread.

OLDBROKER, is it possible in 25 years, you haven't read and digested every line in every contract you've been a part of and maybe as nobody brings the subject or the clause up often you recall only encountering once or twice?

This clause is not that uncommon.
Your lawyer could fire back with 2/3/5K held back for attorney fees and expenses should the unfortunate event occur.
You have to weigh risk/reward such as alienating a buyer.

I included such a so-called "death clause" in my contract when I was buying with my partner. If one of us were to have died in the 8 weeks between contract and closing, it would have been horrible beyond measure to contemplate living alone in the apartment we intended to make OUR home. And financially, the purchase would have been disastrous/impossible for me to afford if my higher-earning partner died, and extremely difficult for him to afford if I croaked. The seller accepted the clause.

The risk is so minimal, a seller would be silly to bicker over such a thing. I was unmoveable on the clause and ready to walk away. The seller needed us more than we needed the seller.

Epilogue: no one died.

My attorney put it in my contract as well without me asking. Opposing attorney never brought it up.

The seller's version of our contract stated that the contract terminated upon death of the Seller (single person) or both of us (unmarried couple). We amended the contract so that it terminated upon the death of either of us for all of the reasons that Kylewest mentioned.

We have sufficient life insurance that either of us could afford the apartment should the other die. But if one of us suddenly dropped dead the day before closing, would I immediately want to deal with a life insurance claim, reapplying for a mortgage on my own, etc., etc. so that I'm not getting sued?

No way I would sign a contract wihtout this clause unless I loved the apartment AND had the ability to pay for it in cash, if necessary. Only a crazy seller would turn away buyers for having this clause.

truthskr10: "The seller's version of our contract stated that the contract terminated upon death of the Seller (single person) or both of us (unmarried couple). We amended the contract so that it terminated upon the death of either of us for all of the reasons that Kylewest mentioned."

You've refreshed my recollection. That is precisely how things went in our deal.

I think you meant lad, Kylewest.
But it appears we are demonstrating the clause is more common than uncommon.

We have also included that clause in our contract when we bought our place. The surviving partner's ability to deal with R.E at such a time is null. a seller who is unwilling to assume such a risk should find another buyer. Alternatively if the seller rent another place, they can add a protecting clause to the rental agreement which allow them to give notice within the first 2/3 months of the lease. Any married couple who buy seriouse R.E and does not include such a clause is risking both their estate and their spouse.

Thanks for your comments all, but 007 above, a comment to you............In the volatile world of Manhattan rentals very few to no managment companies or condo owners want to add a clause to their lease that will let you out in 2 - 3 months no matter what your circumstances may be. In other states or cities where turnover and demand is not nearly so great you may have more leverage. In NYC the attitude with most rental bldgs or individual owners is " Do you want the apartment or not?"......the exception being the very difficult to rent apartments or those that have inflated prices that will be lucky to get a renter in a reasonable amount of time. That's life in the big city in my experience, 30 years later.....

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i have an idea. have your friend come back with up to 30-60 day post-closing occupancy because of this clause. she'll pay a per diem rate of X. the attorneys usually put $10-20K into escrow to be paid out once she departs.

the buyers are safe and so is she.

My husband and I put that clause in our contract when we bought as well (though we're relatively young and healthy). It was a family-size, estate condition apartment; what was either of us going to do with it if the other one wasn't around? It was a non-issue in the deal.

(Specifically, we did the same thing as kyle and lad and changed that pre-existing clause to terminate the contract upon the death of either my husband or myself.)

For Alanhart- I know not based on my personal experience but of a co-worker that needed a special clause in his lease to allow for an out after 2-3 months in the events of something similar.....bldg after bldg turned him down, he was finally able to convince a private condo owner by offering him more money up front in rent, (which most companies would not even entertain). He got what he needed, but not at all easily.

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This is such a minor risk it's not worth all this worry.

The answer back to the buyers lawyer is yes no issue but only returning the deposit less expenses incurred which may but not exclusively include legals, move out fees, new lease fees, brokers fees etc and as a gesture of good faith will not exceed 40% of the deposit.

Its a pretty reasonable rider and also the response is also pretty reasonable.

but the odds of them dieing within 6-8 weeks - negligible.

good comments deanc, I will pass them on....

I'm not sure if this is feasible given the rules around insurance, but why doesn't everyone agree to put a small life insurance policy together on the buyers with the seller as a beneficiary? If this covers the cost of a year's rent, it seems like a way of mitigating the risk for everyone at a fairly low cost.

Ask landlord for a six month surrender agreement, most would accomodate.
Biggest risk at that point would be at most 3 months of extra rent (palatable for such a low risk event).

Friends have negotiated early cancellation clauses with forfeiture of security deposit and one month's rent (i.e. two months rent total) with 30 days notice with Glenwood and Related, both large operators of rental properties.

Hi Jordyn, I like your idea most in concept but I am told if the buyers are at retirement age, good luck getting a life insurance policy. Also, some may object to having to get a physical and if there are pre-existing potential "life-threatening" illnesses involved, they will be turned down for insurance.

Those that say it's not going to happen (the death of the buyer before closing), are the same people that may not fully realize the importance of insurance. Until you experience something that is not covered by insurance that you had the opportunity to cover, one wouldn't be so quick to dismiss the death possibility as minor or trivial. Like I stated before, if the seller is wealthy they might not care one way or the other. If the seller is on the hook for $ 15,000 or more it can make a very big difference.

After all that I've read above the people that came up with a type of "penalty" against the deposit to cover the sellers out of pocket costs for moving, legal fees, etc. perhaps with a cap on it sounds like the most intelligent way to handle a situation like this. To dismiss it altogether is a risk a seller may not want to take and that is certainly an individual choice, there is no right or wrong on this topic I have learned by your postings.

Thanks.

That's steep REMom, mine was half a month's rent.

If the seller wanted additional protections should I die, then I would ask for the same as a buyer. If the seller croaks, then the apartment gets all caught up in an estate and as the buyer I am potentially out of money based on the consequential damages flowing from the seller's inability to perform the contract in a timely manner. So if it is good for the goose, its good for the gander. Best to just not get so fancy and to keep this simple--the death of a party voids the contract. That should be insurance enough for the buyer to avoid disaster and the seller to have rather minimal exposure given the low risk here. That is why this is the way it is generally done. As always in RE, the more you deviate from the norm, the more you are asking for problems.

On another note, D212, whatever happened with your studio sale?

ali r.
DG Neary Realty

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