"Due cause" to terminate contract

We submitted an offer on a park. We used F&D’s contract.

F&D’s contract states: PURCHASER may cancel this Agreement for any reason, at the sole discretion of PURCHASER.

The seller countered saying that we can only terminate the contract if there is “due cause”.

Please help us understand what the seller is saying, and what the implications are.

Thank you.

You can only cancel for a valid reason - your personal whims and feelings in your gut are not good enough. This basically means there must be a material reason not disclosed that would merit backing out… you may need to spell out the specific scenarios in this case (e.g. financing, capital improvements found during inspections that Seller will not repair, etc) as due cause is a vague term.

Do NOT agree to that change. You must have the ability to walk the deal up to the end of the examination period for any reason including you woke up, poured a bowl of cheerios and that formed the letters D R O P I T. That’s what an examination period is all about – it does include your gut instincts, trivial considerations, even your personal life issues.

This seller is simply trying to set you up. Here’s what he’s going to say when you go to drop the deal because it’s in a floodplain, has no operating permit, and is built on top of a landfill: “that’s not enough due cause”. Then you will end up in court or lose your earnest money. How do I know? Been there. Cost me $2,000.

Again, do NOT make that change, or you will regret it for the rest of your life.


@frankrolfe, thanks Frank!

One item to expand on Frank’s comments: the seller may be concerned you’re wasting his time, aren’t serious about the sale, and could be tying it up to mess around. If so, that’s not an entirely unwarranted concern. I still wouldn’t cave and change the termination language, but when sticking to the current termination language I would emphasize why you’re a qualified buyer, serious about the purchase, and have every intention of completing the sale if the due diligence goes as expected.

Understand their concerns - it might be something minor, but he might be trying to screw you.

@jhutson, @Noel_S, thanks.

The seller told the broker that he has to give his employees 60 days notice. So, if I walk the deal, then he would have fired his employees for no reason. He also wants to protect himself from having his time wasted.

Blowing smoke up someone’s back side, don’t let it be yours.

I don’t know your goals after taking over this Park, but keeping on the existing employees for 60 days may not be unreasonable as part of a natural transition, subject to interviews, how much they’re being paid, and your approval.

As for the time wasted either hold firm or if you’re comfortable shorten your diligence period. Let them know due cause is a very vague legal term which would not be good for either party, further amplifying the time wasted concern.

Sort of sounds like bs…

Yeah, that sounds like a big red flag to me and I’d bet a lot of money on Frank’s prediction that the seller would desperately fight any “due cause” claim no matter its legitimacy. He essentially admitted it himself: if you walk the deal, he fired his employees for no reason so why would he do anything but fight like hell if you try walking? The 60 day warning applies whether it’s a totally iron-clad reason to walk or you just decide to walk on a whim, so he genuinely gives you no way out without losing your earnest money and/or paying unnecessary legal fees.

The seller is concerned about giving his employees 60 days notice.

What if I offer to employ his people for at least 2 months after closing as @jhutson suggested?

Yes, that would negate his claimed concern if you actually close. And if you don’t? He still gave the employees 60 days notice so he’d need to replace them regardless.

That was my point. He has to give the notice without knowing what you’ll ultimately want to do after completing the due diligence. If you do want to go through with it, great, everyone wins. If you don’t, though, you walk away unscathed while he has to scramble to find employees. By changing the contract, he’s taking away your option of cancelling without a significant hassle.

edit: If that were the only reason for his stipulation, you could suggest delaying closing to allow for those 60 days. In other words, take the usual 60 days (or less if you need) to complete due diligence and secure financing, then have him give notice once you are convinced you want the park. But since he also uses “not wanting to waste his time” as a reason, that option won’t work either. Him using those two excuses backs you into a corner.

Ask for a copy of their employment contracts which will give you the specifics, and will confirm if this whole thread is a bunch of nonsense.

The scenario would be for Seller to keep business as usual and not give anyone notice - if Buyer backs out the employees are still employed by the Park, and if Buyer closes the employees are still employed by the Park and the only difference is their check is now funded from a different bank account.

A risk is that the entire contract will be hinging on your satisfaction with Seller’s employees and contractual arrangement. If you can look at that first it could save you pain later.

He does not have to do a darn thing. He can fire them the day of closing – after he gets his money – and give them two months of severance if he wants.

That’s an excuse to set you up to be scammed. Nobody gives 60 days notice to their employees when a park gets tied up – it makes no sense.

@frankrolfe, thanks Frank, I really had high hopes for this park, but I think something fishy is going on here.