As discussed in the February 2016 issue of Legal News, the formation of any contract, including those for the purchase and sale of real estate, requires the present intention of the parties to be bound by the agreement. In a transaction for the purchase and sale of land, the initial agreement is most often embodied in an Offer to Purchase (OTP) signed by a prospective buyer and the current owner of the property. However, most Offers to Purchase contemplate that a more detailed Purchase and Sale Agreement (PSA) will soon follow. Although an OTP that includes all the material terms of a contract for the purchase of land, (property description, price, deposit requirements, location, and time and place for closing) can be enforceable without an additional PSA even where one is contemplated, a proffered PSA that changes or adds material terms that were not included in the original OTP may give grounds to the other party to cancel the sale because the introduction of new or altered material terms indicates that there was no present intention to be bound and the parties were only negotiating.
Necessary Consistency Between OTP and PSA Terms
In one recent Massachusetts Land Court case a prospective Buyer of a three-family apartment building submitted an OTP which was accepted by the Seller. The OTP provided for the subsequent execution of a “standard form purchase and sale agreement” by a date certain. The OTP met all of a contract’s essential terms and included a provision that the seller would introduce the buyer to existing tenants at the time of the signing of the PSA so that the buyer could obtain tenant at will agreements and commence eviction proceedings before the closing. The PSA drafted by the Buyer within the time allowed, however, required that the Seller make additional certifications with regard to the tenants. Based on these new provisions, the Seller refused to execute the PSA and canceled the sale. The prospective buyer thereafter sued for an order to enforce the sale based on the OTP. The Seller filed a Motion to Dismiss the complaint, arguing that he was excused from executing the PSA because it contained material terms which were inconsistent with the terms of the OTP.
In deciding for the defendant Seller, the Land Court judge found that “the differences between the OTP and PSA are significant and fatal.” The judge distinguished cases in which the seller was bound by an earlier signing of the OTP containing all essential terms because any departures were “ministerial and nonessential terms of the bargain.” The judge concluded that “where a preliminary writing omits any mention of material terms introduced in a later writing, the new terms not contemplated by the earlier writing render it unenforceable.” The judge continued that “[t]he same concept applies here, when the PSA changes a material term that was expressly set forth in the OTP.”
If you are buying or selling real estate, contact Attorney Allison now by calling 978-740-9433. We look forward to talking to you.