[Under Contract] But I’m Not Buyin’ It

[Under Contract] But I’m Not Buyin’ It
Posted by Jonathan J. Miller under Ethics , Legal

The real estate contract is a hot topic today. In declining housing markets, it is not uncommon for a buyer to have second thoughts, rational or not. I heard of an example recently where an exasperated buyer called the broker with a solid contract to exclaim (paraphrasing): “Dammit, the co-op board approved my purchase!”

When the deal is signed, both parties are bound in good faith to see the transaction all the way through.

The implied covenant of good faith and fair dealing between parties to a contract embraces a pledge that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract”

In New York State, that’s now become a matter of semantics.

The New York Court of Appeals ruled today that lawyers can disapprove of a client’s real estate contract for any reason within the three-day attorney review period.

And the court ruled that it’s not bad faith, even if the lawyer simply nixes the deal because a client wanted to back out, Newsday reports.

Here’s the wording in the ruling:

We therefore hold that where a real estate contract contains an attorney approval contingency providing that the contract is “subject to” or “contingent upon” attorney approval within a specified time period and no further limitations on approval appear in the contract’s language, an attorney for either party may timely disapprove the contract for any reason or for no stated reason.

I always thought that the attorneys were involved to advise on legal aspects of the deal, not to provide a way to circumvent good faith intentions established at the time of signing. I think this actually places the attorneys in an awkward position.

Apparently, I have a lot to learn.