The NVAR Legal Hotline has received many questions regarding voiding and releasing sales contracts this fall. Refresh your skills with this guide!  

Can you give me a refresher on what it means to void, release, and breach a sales contract?

Key Terms:

• Void: A contract that is void is one that is null or legally invalid from inception. This is extremely rare and generally means the contract never existed.
  • Examples: A contract for the sale of an illegal item.
• Voidable: A contract that is legally valid, but a party has contractual or legal protection that allows them to later cancel the agreement without penalty. In other words, the contract can be “voided.” This is typically a unique right that is specifically granted in the contract.
  • Example: A contract with a financing contingency is voidable. A buyer may exercise their right to cancel the contract without penalty if they do not secure specified financing by the deadline.
• Release: If a contract is released, this means that the parties mutually agree to terminate the contract. Sometimes, if one party does not agree to release, a court can still require them to release the contract.
• Breach: If a party is not following the terms of a contract, that party is likely in breach of the contract. 

Can my Buyer “walk away” from, or void, a contract for HOA violations? What if the Seller refuses to do repairs under the Home Inspection Contingency Removal Addendum (HICRA)?

Typically, no.

Generally, there are very few legal reasons for which a Buyer can void a sales contract; however, specific contingencies (e.g., home inspection contingency, financing contingency, appraisal contingency) and the recission period under the Virginia Resale Disclosure Act may be allowable reasons.

If the Seller is not following a term of the contract, which can include refusing to address an HOA violation, the Seller is likely in breach of the contract. The Buyer will have to enforce the contract through legal means to compel the Seller to comply. These means can include:

• demand letters,
• declaring material breach/default,
• requesting specific performance, and/or
• filing a breach of contract action before or after the settlement date.

Keep statute of limitations in mind! 

What can an agent do when a Seller isn’t following the terms of the contract?

Agents should first advise their clients to seek legal advice, especially if the Buyer refuses to close. Remember: under the legal doctrine of unclean hands, if a party wishes to declare the other party in breach of a contract, the non-breaching party must still perform their duties and obligations under the contract. In other words, if the Buyer does not close in response to a breach of the contract by the Seller, in some occasions, the Buyer may also be in breach of the contract, which could potentially cancel out the Seller’s breach.

Agents can negotiate extensions to the settlement date to give the parties more time to resolve disputes. These can include pre- or post-settlement occupancies, if needed.

Agents can also negotiate subsidies, allowing a Seller to place money into escrow for the Buyer. This is especially helpful if there are outstanding repairs required to be conducted by the Seller. 

Is the release really necessary if the contract is voided?

Yes! In Paragraph 26 of the NVAR Residential Sales Contract, if a contract is voided without default or breach by either party, both parties will IMMEDIATELY execute a release directing the Earnest Money Deposit (EMD) to the Buyer in full. The Seller could be in breach of the contract by refusing to sign a release after the Buyer validly voids, subjecting the Seller to further penalties than just the EMD (including, potentially, the Buyer’s attorney’s fees!).

What happens to the contract if the parties do not close by the settlement date?

Remember Paragraph 28 of the sales contract — Time is of the essence! The parties must close by the settlement date. If one or both do not close by the pre-determined date, then the contract terminates, and the parties will have to negotiate the release for the EMD.

The parties cannot attempt to void the contract after the settlement date. The ability to void ceases on that date. If the parties wish to continue attempting to close on the property, they will need to execute an entirely new sales contract. An addendum will not revive the sales contract.

My client wants to terminate their lease. Can it be voided?

Very few NVAR standard forms can be voided. For example, brokerage agreements and leases can be released, but they cannot be voided. If you’re unsure which form can or cannot be voided, contact the Legal Hotline & FAQs.