What Is a Notice to Perform?
How a Notice to Perform May Allow a Buyer or a Seller to Cancel
Not all states use a Notice to Perform; however, California does. The Notice to Buyer to Perform and the Notice to Seller to Perform are forms created by the California Association of REALTORS. The Notice to Perform is required in many instances before a party is entitled to cancel a purchase contract. Simply because one party did not perform a contractual obligation does not give the other party the right to cancel until the Notice to Perform is delivered.
The Notice to Buyer to Perform to Remove Contingencies
Real estate agents in California commonly advise their sellers to use the Notice to Buyer to Perform to try to make the buyer remove contingencies. The C.A.R. purchase contract spells out the time period for contingency releases.
If the buyer does not remove the contingencies in writing, those contingencies may stay in effect. They do not expire because the time period has passed. The contingencies to be removed can be all of the contingencies or one of the following contingencies, or any combination thereof, depending on which box is checked. Here are a few types of contingencies:
- Loan Contingency
- Appraisal Contingency
- Inspection Contingencies
- Disclosures and Reports
- Contingency to Sell Buyer's Home
The Notice to Buyer to Perform Contractual Actions
Buyers may not be aware that when they sign a C.A.R. purchase agreement, they are making contractual agreements with the seller to do certain things.
These obligations might be to deliver signed documents to the seller by a particular date or to provide other forms of evidence of qualification to purchase. Before a seller can cancel a contract due to the buyer's failure to do any of these things, the seller is obligated to send the buyer a notice demanding that the buyer perform.
Some of these contractual actions are the following:
- Deposit an earnest money deposit.
- Increase the earnest money deposit.
- Submit a loan preapproval letter or prequalification.
- Provide proof of funds to close escrow.
- Sign and return disclosures and reports.
- Provide evidence that the buyer's home is in escrow.
Why Do Sellers Sign a Notice to Buyer to Perform
Sellers demand that buyers perform because sellers don't want to drag out an escrow, only to find out the buyers have no intention of closing. In the case of a contingency release, the seller may be entitled to the buyer's earnest money deposit if the buyer later cancels the transaction after releasing all contingencies. The amount of the deposit the seller may retain is defined in liquidated damages.
Other times, the seller may actually want to cancel the contract and will look for a reason to force the buyer out of the contract for non-performance. The time period to comply is specified in the Notice to Buyer to Perform.
The Notice to Seller to Perform
Buyers' agents in California may advise their buyers to give the seller a Notice to Seller to Perform to try to make the seller provide reports or disclosures. If the buyer, for example, does not receive these reports or disclosures from the seller within the time period specified in the Notice to Seller to Perform, the buyer may have the right to cancel the contract or delay removing the buyer's own contingencies.
Here are some types of contractual actions a buyer might request that a seller perform:
- Delivery of the pest inspection.
- Delivery of the Seller Property Questionnaire or TDS.
- Homeowner Association documents.
- Report of previous insurance claims.
- Natural Hazard Disclosure.
- Preliminary Title Report.
- Removal of seller's contingency to buy a new home.
- Demand to close escrow.
NOTE: This article pertains only to a Notice to Buyer to Perform and a Notice to Seller to Perform as prepared by the California Association of REALTORS®, and is not to be construed as giving legal advice. If you desire legal advice, please consult a lawyer.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.