An escape clause is any clause, term, or condition in a
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
that allows a party to that contract to avoid having to perform the contract.
If an
agreement Agreement may refer to:
Agreements between people and organizations
* Gentlemen's agreement, not enforceable by law
* Trade agreement, between countries
* Consensus, a decision-making process
* Contract, enforceable in a court of law
** Meeting ...
was drawn up for the sale of a
house
A house is a single-unit residential building. It may range in complexity from a rudimentary hut to a complex structure of wood, masonry, concrete or other material, outfitted with plumbing, electrical, and heating, ventilation, and air cond ...
, for example, the purchaser could include some kind of escape clause in the contract, which will allow him to "escape" from the contract without being liable for
breach of contract
Breach of contract is a legal cause of action and a type of civil wrong, in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other part ...
.
Real estate escape clauses
A "Subject to a builder's inspection to purchaser's full satisfaction" clause is one example of an escape clause. This clause effectively allows the
purchaser to "escape" from the contract if an inspection reveals any irregularities or defects.
Another example is the "Subject to 30-day due diligence" clause, which effectively gives the purchaser a 30-day buffer period to inspect any and all aspects of the property before having to commit to the
purchase
Purchasing is the process a business or organization uses to acquire goods or services to accomplish its goals. Although there are several organizations that attempt to set standards in the purchasing process, processes can vary greatly between ...
.
A
72-hour clause
A 72-hour clause, typically inserted in real estate sale contracts, is also known as an escape clause, release clause, kick-out clause, hedge clause or right of first refusal clause.
The 72-hour clause is a seller contingency which allows the ...
is an example of a seller's escape clause that may appear in
real estate
Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more genera ...
contracts.
The finance contingency clause makes the purchase offer contingent upon either the buyer or the property or both qualifying for the loan or
mortgage
A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any ...
the buyer will need.
Escape clause abuse
Escape clauses, although fulfilling a real and sincere purpose in contracts of all kinds, have the potential of being abused.
For example, the "Subject to a surveyor's inspection to purchaser's full satisfaction" clause mentioned above can be abused if the buyer contracts a surveyor and instructs then to find some kind of fault in the property. The buyer, in other words, takes advantage of the escape clause to cancel the agreement to buy because he has
buyer remorse, rather than because there is something wrong with the property.
Escape clause validity
Escape clauses that require a purchaser or an expert representing the purchaser to be satisfied with the goods or services being purchased, have been challenged in
lawsuit
-
A lawsuit is a proceeding by a party or parties against another in the civil court of law. The archaic term "suit in law" is found in only a small number of laws still in effect today. The term "lawsuit" is used in reference to a civil act ...
s as invalid for lack of
consideration
Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions.
The court in '' Currie v Misa'' declar ...
. The argument is that a party can always escape such a contract by merely claiming to be dissatisfied. Therefore, there is no real requirement for that party to perform their obligations under the contract (to pay for the goods or services), and an agreement that only requires performance by one party is an
illusory promise
In contract law, an illusory promise is one that courts will not enforce. This is in contrast with a contract, which is a promise that courts will enforce. A promise may be illusory for a number of reasons. In common law countries this usually r ...
, void as a contract. Instead, such an agreement constitutes a gift from the performing party to the non-performing party.
Courts have generally held, however, that an escape clause containing a requirement of satisfaction nevertheless creates an enforceable contract, because a court could determine whether a claimed dissatisfaction was or was not reasonable, and therefore feigned to avoid the contract.
International trade institutions
International trade agreements tend to include at least one form of escape clause.
Common escape clauses include
countervailing duty penalties,
antidumping statutes, national security exceptions,
infant industry exceptions,
balance of payment
In international economics, the balance of payments (also known as balance of international payments and abbreviated BOP or BoP) of a country is the difference between all money flowing into the country in a particular period of time (e.g., ...
exceptions, and safeguard clauses.
Escape clauses tend to be attractive in the drafting of trade treaties because they give political leaders flexibility to implement trade protection if there is domestic pressure to do so.
See also
*
Break clause
A break clause is a term in a contract that allows early termination of the contract before the default end date. In accordance with English property law, such clauses are typical in tenancy agreements, so as to allow a tenancy to come to an e ...
* ''
Force majeure
In contract law, (from Law French: 'overwhelming force', ) is a common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, suc ...
''
References
{{reflist
Real property law
Contract clauses