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Dear Forms Committee: Which obligations of the parties in the Sale Agreement survive closing?

Generally, the Sale Agreement is presumed to be fulfilled or” performed” at closing. This is because the seller has conveyed the property to the buyer at closing, and the buyer has paid the purchase price to the seller. Because the parties agreed that most of the Sale Agreement obligations go away at the moment of closing, the parties must perform those obligations at or before closing to have a successful close. However, two types of obligations survive closing. These two obligations are:

(1) those that say something like “this obligation survives closing,” such as in the “Filing Claims” section of the Sale Agreement; and

(2) those which, by their terms, can reasonably be expected to continue beyond closing.

The first exception is self-explanatory because the parties agreed these would survive. However, consider these examples for the second situation:  :

  • The “Seller Representations” section of the Sale Agreement contains statements made “to the best of Seller’s knowledge.” Suppose the seller knew that a representation was not true, and the buyer was damaged by relying on the untruth of the statement. In that case, the buyer could be awarded compensation in a post-closing arbitration
  • The “Title Insurance” section of the Sale Agreement says the title insurance policy will be issued 30 days after closing.  Because the title insurance company has to consider everything recorded before the deed, title insurance policies are issued after closing.
  • The “Utilities” section of the Sale Agreement requires the parties to handle certain payments outside of escrow.  If this doesn’t happen before closing, the parties are not necessarily off the hook – it is still an obligation.
  • The obligation to vacate the property and remove all personal property would survive closing if the seller failed to comply by closing.
  • As an addendum to the Sale Agreement, OREF 054, Agreement to Occupy After Closing, is part of the Sale Agreement under the “Definitions” section.  But that doesn’t mean it is no longer valid after the parties close: it must survive closing to remain enforceable.
  • The parties could also write up their own addendum that requires something to happen after closing, such as the completion of repairs that were begun before closing.

These provisions, and any other provisions in the Sale Agreement or in the addenda to the Sale Agreement that must survive closing to make sense, will survive closing so that the parties have an ongoing contractual requirement to perform after closing.

Always check with your principal broker or legal counsel to ensure that you are following any policy requirements of your brokerage.

All comments and responses from OREF or its staff, managers, and volunteers are non-legal opinions made for general purposes. Each Forms subscriber must rely solely upon their Principal broker or personal legal counsel for specific advice and instruction. You and your client should independently confirm that the Form(s) you use are legally suitable for the purposes intended and that they are current with respect to all laws and regulations.