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Summary: The Seller's Concession (SC) Escape Clause is a contingency in a real estate agreement that lets either the buyer or the seller back out under specific conditions tied to the seller's concessions, such as the buyer's lender not approving them. A seller's concession is an arrangement where the seller agrees to cover part of the buyer's closing costs. Both should be clearly drafted in the Agreement of Purchase and Sale, with a real estate lawyer's help.
Real estate agreements are full of clauses and terms that can be long-winded and unclear. The Seller's Concession (SC) Escape Clause is one worth understanding, whether you are buying or selling, so let's break it down.
What is a seller's concession?
At its core, a seller's concession is an agreement within the real estate transaction where the seller agrees to pay a specific portion of the buyer's closing costs. This can include various fees such as loan fees, appraisal fees, and title insurance costs, among others. The intention is to make the purchase more accessible for the buyer, potentially speeding up the sale. The benefit to buyers is clear, with reduced closing costs allowing for increased buying power. From the seller's perspective, it can make for a faster sale and create leverage to use in negotiating.
What is the SC Escape Clause?
The SC Escape Clause, while not a staple in every Agreement of Purchase and Sale (APS), is something that can significantly impact the transaction. This clause is essentially a contingency within the agreement that allows either the buyer or the seller to back out under specific conditions tied to the seller's concessions. It is a safety mechanism that protects the interests of both parties if predefined circumstances are not met.
The clause will typically outline the conditions under which it can be activated, the notice period required to activate it, and the consequences of its activation. The idea is that there should be no surprises about what happens if it is activated.
For example, imagine a scenario where a buyer's financing falls through because the lender does not approve of the seller's concession. An SC Escape Clause could allow the seller to back out gracefully, avoiding a prolonged selling process, with the conditions clearly outlined to allow a smooth exit and a shift of focus back to finding a buyer.
Is the SC Escape Clause legally enforceable in Ontario?
For the SC Escape Clause to be enforceable in Ontario, it must be clearly defined within the APS, including the specific conditions under which it can be activated. It often acts as a condition precedent, meaning the completion of the sale is contingent on certain conditions being met. If those conditions are not satisfied, the party benefiting from the clause may legally withdraw from the agreement without penalty. If a dispute arises out of the clause, the buyer and seller will likely need to engage in mediation, arbitration, or even litigation.
For all of these reasons, it is important to craft the clause carefully and clearly so it serves its intended purpose and does not lead to disputes after the fact. This is where your real estate lawyer and real estate agent are incredibly helpful, combining legal expertise from the lawyer with market experience from the agent.
How does the SC Escape Clause affect buyers and sellers?
For buyers, the SC Escape Clause provides a form of protection. If the financing provider does not approve of the seller's concessions, or if other related conditions are not met, buyers can withdraw without losing their deposit. It ensures they are not over-leveraged or stuck in a deal that is not financially viable. On the flip side, it could mean losing out on a property if the clause is triggered, so buyers should tread carefully.
Sellers benefit by having a clear exit route if the deal cannot proceed under the agreed terms, particularly if the concessions they offered are no longer viable due to changes in the buyer's financing or other factors. It protects sellers from prolonged uncertainty and from having their property tied up in a transaction that fails to close. There are trade-offs for both parties, which is again where expert guidance is valuable.
How is the SC Escape Clause negotiated?
This is where real estate agents earn their keep. Their role in negotiating the SC Escape Clause is pivotal in protecting their clients' interests while managing a successful transaction. Agents act as intermediaries, advisors, and negotiators, leveraging their expertise to guide both buyers and sellers through the complexities of real estate agreements, including the nuanced SC Escape Clause.
What are the alternatives to the SC Escape Clause?
There are a number of alternatives worth considering in consultation with your real estate agent. Conditional offers, adjustment clauses, financing clauses, and inspection clauses all work to protect against certain areas of concern. For example, if there is a concern about the purchaser obtaining the financing they need, a financing clause lets them back out without penalty if they cannot obtain it. Whether you choose an SC Escape Clause or one of these alternatives depends on what best suits your transaction, the market, your needs, and the other side's needs.
Frequently asked questions
What does the SC Escape Clause do?
It is a contingency in the Agreement of Purchase and Sale that lets either the buyer or the seller back out under specific conditions tied to the seller's concessions, such as the buyer's lender not approving them. It is meant to protect both parties if predefined circumstances are not met.
What is a seller's concession?
A seller's concession is an arrangement where the seller agrees to pay a portion of the buyer's closing costs, which can include fees such as loan fees, appraisal fees, and title insurance. It can lower the buyer's upfront costs and help the sale move faster.
Is the SC Escape Clause enforceable in Ontario?
Yes, if it is clearly defined in the Agreement of Purchase and Sale, including the conditions under which it can be activated. It often functions as a condition precedent, and the party benefiting from it can withdraw without penalty if those conditions are not met.
How does the SC Escape Clause protect a buyer?
If the lender does not approve the seller's concession, or other related conditions are not met, the buyer can withdraw without losing their deposit, avoiding being stuck in a deal that is not financially viable.
What are the alternatives to an SC Escape Clause?
Common alternatives include conditional offers, financing clauses, inspection clauses, and adjustment clauses. A financing clause, for instance, lets a buyer back out without penalty if they cannot secure financing. The right choice depends on your transaction and the market.
About the author
Joel Fox is a co-founder and COO at Ownright. He helps run the firm's day-to-day work on Ontario residential closings, refinances, and sales, and writes regularly to demystify the parts of a transaction that most homeowners only encounter once or twice in their lives.
At Ownright, we focus entirely on Ontario residential real estate law. We can support you as you work with your real estate agent to craft the Agreement of Purchase and Sale, then work with all the parties involved to bring the transaction to a close. You can start your closing online or get in touch with any questions.
Important note: This article is not legal advice. No one should act, or refrain from acting, based solely on the information in this post or any linked materials without first seeking appropriate legal or professional advice.
