When to Use an Addendum

In an ideal world, after a buyer and seller execute a contract, things proceed seamlessly, no issues arise at all, and the parties close on their agreed-upon closing date.

The reality: While that can occur in your transactions, many times it just isn't the case. One thing or another pops up along the way, and the parties need to change their current agreement, whether that's an extension of a closing date or amending the contract to add a new term. Before you race to grab an addendum, though, first consider whether or not it's actually needed. Depending on the details, it's entirely possible you don't need to do anything.

This article considers a few different scenarios that can occur and whether or not an addendum is needed. (For purposes of this article, the Florida Realtors/Florida Bar ("FR/Bar") contract is referenced).

Scenario 1
The title company handling the closing finds a lien on the property that the seller didn't realize was there. The seller says he'll handle it, but it probably can't be settled on time for the agreed-upon contract closing date.

Do the parties need to sign an extension for the closing date? In short, no.

Per Standard 18A of the FR/Bar contract, the buyer is supposed to notify the seller, in writing, of any defect in the title commitment within five days after receiving it. The seller then has 30 days after receiving this notice, defined as the seller's Cure Period, to "take reasonable diligent efforts" to remove the defect. Assuming the seller is able to fix the defect within the Cure Period, the seller needs to notify the buyer in writing, along with proof of the cure acceptable to the buyer, and the parties should proceed to closing.

If the closing date has passed during the 30-day cure period, the closing is to take place "within 10 days after buyer's receipt of seller's notice." In this example, there's no need for the parties to sign an extension since the contract already addresses how the closing should proceed in the event of a title defect.

Scenario 2
The buyer and seller have an "As-Is" version of the FR/Bar contract. The buyer performs her inspection and decides she wants to ask the seller for repairs. The buyer's agent emails the listing agent to ask about the seller's willingness to make repairs. The seller verbally indicates he is willing to fix the some of the items the buyer is asking about – but not all.

Is an addendum needed? In short, it probably is.

It could be an addendum extending the inspection period so the parties can further negotiate the repairs, or it could be an addendum to address the agreed upon repairs. In either case, the parties should have something in writing. It's not a good idea to rely on verbal representations about a party's willingness to make repairs; and it's not a good idea to think that simply inquiring about repairs provides more time or an automatic extension of the inspection period. The seller could refuse to honor the repairs later and the buyer likely would have little recourse.

Additionally, there is no "pause button" on your inspection period clock. Even if the parties are negotiating repairs, the clock is still ticking. If the buyer can't get an agreement in writing with the seller about the repairs or an extension for the inspection period, she will need to decide whether to cancel the contract before the inspection period ends or her deposit could be at risk.

Scenario 3
A hurricane sweeps across Florida. While the property isn't damaged, power is out around the state and the title company doesn't have any power to conduct a closing on the agreed-upon contract closing date.

Do the parties need to get an addendum to extend the closing date? In short, no.

Standard 18G addresses this scenario and states, in sum, that neither party will be required to perform any obligations under the contract when the non-performance is due to Force Majeure. All time periods will be extended "a reasonable time up to 7 days after" such Force Majeure no longer prevents performance. So, in this example, the parties should close within 7 days after the title company regains power and can process the closing. No addendum is necessary since the contract already addresses what happens when a defined Force Majeure event prevents performance.

Note: It's important to keep in mind that all contracts are different, and the above examples are specific to just one contract. In general, when in doubt over whether an addendum is necessary or not, look to the contract provision that covers the issue. Many times, these types of "what if" scenarios are considered by the contract terms and can save the agent from taking additional – and possibly unnecessary – steps.