What is an Escape Clause?
An Escape clause, also known as an contingency clause, is a contract term that requires a specified event or action to occur before the contract is declared legitimate. The other party is relieved from its duties if the party who is obligated to satisfy the contingency clause is unable to do so.
Escape Clause Definition
Any provision, term, or condition in a contract that allows a party to avoid performing the contract is known as an escape clause.
If a contract was written for the sale of a house, for example, the buyer could insert an escape provision that allows him to “escape” from the contract without being held accountable for breach of contract.
Types of Escape Clauses
- A provision such as “Subject to a builder’s inspection to the full satisfaction of the purchaser” is an example of an escape clause. If an examination shows any inconsistencies or faults, this clause effectively allows the buyer to “exit” from the contract.
- Another example is the “Subject to 30-day due diligence” provision, which offers the buyer a 30-day window to check any and all parts of the property before committing to the purchase.
- A seller’s escape provision, such as a 72-hour clause, may appear in real estate contracts.
How do Escape Clauses work?
A contract can have an escape provision that benefits either party. In contracts including these terms, courts frequently require a good faith attempt. For those involved in the contract, a contingency clause can be thought of as a type of escape clause. It allows one party to terminate a contract if specified conditions are not satisfied, albeit the party who benefits from the clause can waive it.
Conditional offers, similar to employment contracts, can include contingency clauses. A job offer could be conditional on passing a drug test or a background check.
Escape Clause Validity
Escape clauses, which require a buyer or an expert representing a buyer to be content with the goods or services they’re buying, have been challenged in court as being unenforceable due to a lack of consideration. The argument goes that a side can always get out of a contract by declaring dissatisfaction. As a result, that party has no genuine obligation to perform their responsibilities under the contract, and an agreement that only needs one party to perform is an illusory promise that is worthless as a contract. An agreement like this is a gift from the performing party to the non-performing party.
However, courts have traditionally found that an escape clause incorporating a satisfaction condition still constitutes an enforceable contract because a court might assess whether a claimed disagreement was reasonable or not, and thus feigned to evade the contract.
Escape Clause Summary
An escape clause is a contract provision that requires the occurrence of a specified event or action before the contract is declared legitimate. The other party is relieved from its duties if the party obliged to satisfy the contingency clause is unable to do so. Real estate escape clauses may require the buyer to secure financing, the home to pass inspection, or an appraisal to be completed.
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Financial Consultant and Author