Addendum for "Back-Up" Contract

Questions and answers for this form designed for "buyers in waiting."

by Ron Walker   The Addendum for "Back-up" Contract is to be used when a prospective buyer wishes to make an offer to purchase a property that the seller has already agreed to sell to another buyer. The backup buyer and seller agree that if the first contract terminates by a certain date, the seller will sell the property to the backup buyer.

Frequently asked questions

While in the backup position, does the backup buyer need to perform under the contract?

The last line in Paragraph A of the addendum provides that the parties only need to perform as the addendum requires. The first line in Paragraph A requires the backup buyer to deposit the earnest money and pay the option fee, if any, to the seller at the time the parties execute the backup contract. No other performance is required until and if the backup contract becomes the primary contract.

What is the effective date under the Addendum for "Back-up" Contract?

The effective date (for purposes of depositing earnest money and paying the option fee) is the date of final acceptance (the date both parties sign the backup contract). The effective date for all other performance under the contract is the "deemed effective date," which is the date the seller notifies the backup buyer that the first contract is terminated.

If the option (Paragraph 7D(1)) applies in the backup contract, may the backup buyer terminate when in the backup position?

Yes. Paragraph E in the addendum answers this question. The backup buyer may terminate at any time when the backup buyer is in the backup position. The option period, then, runs from the deemed effective date (the date the backup contract becomes the primary contract) through the number of days specified as the option period.

If the backup contract never moves into the primary position, does the backup buyer receive a refund of the earnest money and the option fee?

The earnest money is returned to the backup buyer, but the seller retains the option fee. Note that the backup buyer retained the right to terminate the backup contract at any time the buyer remained in the backup position.

If the seller agrees to extend closing under the first contract or otherwise change the first contract, may the backup buyer claim that the first contract is terminated?

No. Paragraph D under the addendum answers this question. An amendment to the first contract does not terminate the first contract.

May the Addendum for "Back-up" Contract be used to negotiate a backup contract to another backup contract?

No. The addendum is not designed for this purpose.

How does a seller notify a backup buyer that the first contract is terminated?

Notice must be in writing. See TAR Form 1912, which may be used for this purpose.

If the seller does not notify the backup buyer that the first contract terminated by the date specified in Paragraph B of the addendum, should either party notify the other that the backup contract is terminated?

Such a notice is not required, but is probably a good way of documenting the termination. TAR Form 1913 may be used for this purpose.

Ron Walker is director of legal affairs for TAR.

Editor’s note: All TAR and TREC forms are available for free downloading on the member-only pages of the TAR Web site, www.tar.org.

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