Idaho Real Estate Commission
Out of Jefferson County (East Idaho)
Buku Properties, LLC (Buyer) entered into two land sale contracts to buy adjacent properties, one owned by the Clarks and the other by the Petersons (both Sellers).
Buyer put down $327,000 in earnest money for the property owned by the Clarks and $25,000 for the piece owned by the Petersons.
Both contracts provided that all but $10,000 of the earnest money was “refundable untilclosing” and that Buyer had a 4 month window to be fully satisfied with the condition of the property.
Buyer became concerned about the impact of a possible Jefferson County zoning changethat would negatively impact the value of the property. Within the 4 month window,Buyer asked for an extension to resolve the zoning issue, and Sellers refused.
Buyer elected to cancel the contract and demanded refund of both earnest monies over $10,000, Sellers refused.
Buyer sued for return of earnest money and district court granted summary judgment infavor of Buyer. Sellers appealed.
Supreme Court Holding
The Supreme Court affirmed. The Court stated that the language in the Buyer’s ObligationClause permitting the Buyer to be “fully satisfied with the condition of the property” was a typeof “free look” provision permitting the Buyer to walk away from the sale. The Court construed Buyer’s request to extend the review period as an exercise of Buyer’s right to refuse to close.Therefore, Buyer was entitled to a refund of its earnest money (all but the $10,000) under each of the contracts.
Buyers may wish to consider putting “free look” provisions in real estate purchase agreementswhere there are large earnest money deposits or potential issues with the property. Sellers whoaccept contracts with these clauses should understand that the buyer is free to walk on the deal,and that the buyer’s unconditional right to walk is enforceable. However, large earnest moneydeposits may be an invitation to litigate, even if the contract language is clear and unambiguous,as the Court found here. You should advise the buyers and sellers to seek legal counsel beforesubmitting or accepting any offer with a “free look” provision, and also whenever a buyer attempts to exercise the “free look” and walk away.