Notice to Perform - Just a Toothless Dog?
When a Buyer and Seller sign a contractual agreement to enter escrow and transfer ownership of a property, promises are made. The Seller promises to tell the Buyer about any issues the property may or may not have with enough time to review them. They promise to transfer the property to the Buyer with clear title. They promise to give the Buyer access to the property to conduct inspections to take measurements. And the Buyer promises to pay a certain price for the home. They promise to bring in a certain amount of money up front as a sign of good faith. They promise to get the rest of the money through a specific method (loan, sale of their own property, cash, etc). They promise to look into every aspect of the property that might be an area of concern for them. They promise to lock in their commitment to the Seller once all of their obligations are satisfied. And both parties agree to close escrow within a certain time frame or on a specific date.
But what happens when a party breaks their promise? When someone doesn't hold up their end of the deal? How do you draw a line in the sand to let the other party know its time to s**t or get off the pot? That's where the Notice to Perform comes into play. Key terms and performance milestones are buffered by a process that shifts the control from the party that's dragging their feet, to the one stomping their feet.
How do you draw a line in the sand to let the other party know its time to s**t or get off the pot?
Many experienced agents know this as the "nuclear bomb" of a transaction. There's always been this innuendo tied to the document that the person receiving it will/should be offended and the person delivering it hates your stinking guts.
As Transaction Coordinators, we have a court-side view to this delicate dance and have noticed an interesting shift.
Agents that receive a Notice to Perform don't really care and agents that send it are sure to preface the delivery with an announcement that they have no intention to enforce it. It's become a benign ritual of going through the motions to document the file and not the dramatic ultimatum it used to be. So why is that? We have few theories:
Starting Over Sucks
The Notice to Perform is black and white. Do this by this time or this sale is cancelled. When you're 3 weeks into an escrow and your Seller has scheduled the moving van or your Buyer has given their landlord notice, the last thing anyone wants to do, is restart the clock.
This means tracking down potential backup offers to see if they're still interested. Starting up another home search. All new sets of paperwork to sign & file. Not to mention the possibility your client just gives up and you lose the deal altogether.
In these circumstances, the Notice to Perform becomes a shot across the bow to notify the other agent that it's time to get to the negotiating table.
Fighting Fire with Fire
Buying or selling real estate can be an emotional process for your clients. Saying goodbye to a lifetime of memories or plunking down a lifetime of savings; it can cause even the most reasonable people to regress into toddler status. This is where the marriage counselor/therapist part of the real estate agent job description kicks in.
Sometimes the only way to soothe a Seller tantrum or move a stubborn Buyer is to waive a Notice to Perform in front of their face. We've seen many agents ask for a Notice to Perform from the other side in an attempt to get their client moving in the right direction.
It's Not Confetti
Another issue we see a lot when handling the Notice to Perform, is that agents don't really know how to use it. They throw it around at every turn so people aren't phased by it any longer. When you deliver a Notice to Perform in the wrong time frames or with the wrong boxes checked, it makes the document invalid. Not to mention how many agents don't know or understand how the dates are calculated.
Some of the "old skool" agents know it as the 48 Hour Notice to Perform. And many still operate on that assumption. But changes to the verbiage in the contract over time has given more clarity to this powerful tool.
Section 14(E) of the Residential Purchase Agreement from C.A.R. states:
The NBP or NSP shall: (i) be in writing; (ii) be signed by the applicable Buyer or Seller; and (iii) give the other Party at least 2 (or ) Days After Delivery (or until the time specified in the applicable paragraph, whichever occurs last) to take the applicable action. A NBP or NSP may not be Delivered any earlier than 2 Days Prior to the expiration of the applicable time for the other Party to remove a contingency or cancel this Agreement or meet an obligation specified in paragraph 14.
When to Perform
The first part of this section gives the other party 2 Days After Delivery to perform the requested action. The fact that the first letter of those 3 words is capitalized is not an accident. It's a definition. Section 30 of the RPA tells us that we aren't calculating 48 hours from delivery. Day of Delivery is Day Zero. Furthermore, the end of Day 2 comes at 11:59 pm and the final day cannot be on a weekend or a holiday and instead goes to the next calendar day.
So, if you deliver a Notice to Perform on the Friday before a 3 day weekend, the other party has until 11:59 pm on the following Tuesday to perform
When to Deliver
This explanation also puts a cap on how early you can deliver a Notice to Perform. It includes terms also defined in Section 30 for "Days Prior" and "Delivered". This means, if a Buyer is due to remove their contingency on Tuesday and you send out the Notice to Perform on Friday because there's a 3 day weekend, it's no longer valid come Tuesday. It's very easy to get stuck in a time loop of deadlines when dealing with the Notice to Perform
So what's an agent to do? That's what we want to know! Have you noticed this shift into a less toxic Notice to Perform environment? What do you do to make sure all parties stick to their timelines? What do you think the process should be instead of the one we have currently? Comment below and let us know!