And Another Thing...Using Addenda to Modify Contracts

Ray Michalowski, Esquire

Despite the fact that the current version of the PAR Standard Agreement of Sale ("AOS") is 10 pages long (front and back including the "Notice" pages), there are still occasions when an agreement between Buyer and Seller require additional terms to modify the AOS. These terms are likely to take the form of one or more addenda that become part of the AOS.

Addenda are a lot like fireworks: elegant and beautiful in their simplicity when properly handled, dangerous and likely to blow up in your face when mishandled. Calls to the PAR Legal Hotline -- and sometimes lawsuits -- are common by-products of poorly drafted addenda. "Bad addenda" calls to the Hotline probably rank as the fourth most-common subject on the Hotline behind only procuring cause, escrow dispute and advertising issues. In fact, many escrow dispute calls are caused by the questionable use of non-standard addenda.

When drafting your own addendum, or modifying a standard one, and problems arise, expect the Hotline attorney to tell you that you may have committed malpractice but that they are not sure what effect it will have on the contract since the meaning of a homemade addendum is often difficult to fathom. This is not a good thing because courts construe ambiguously drafted terms against the drafter.

To help avoid this pitfall, PAR has developed extremely useful Standard Form Addenda. Form TER ("Notice of Termination of Agreement of Sale) contains a unilateral notice of termination and a separate release form. (Don't forget that a release is a proposed addendum and only effective when signed by both parties.) Use form TER to ensure that the contract is terminated in a timely way and to ask for terms of release. Use Form CTA ("Change in Terms Addendum to Agreement of Sale") for mid-transaction modification of AOS terms. This form provides a standard format for changing the seven most commonly modified terms in the AOS. Responding to recent market conditions, PAR now has three new addenda available specifically for short sale transactions: Form NSS ("Notification to Buyer of a Potential Short Sale"), Form SSL ("Short Sale Addendum to Listing Contract"), and Form SHS ("Short Sale Addendum to Agreement of Sale").

PAR Standard Form Addenda are available to address pre- and post-settlement possession by Buyer and Seller, replies to inspections, appraisal and sale/settlement of other property contingencies and more. When an addendum to the AOS is needed, you should follow these three simple steps:

1) Use a PAR Standard Form Addendum that fits your need.

2) If necessary, use an appropriate standard office addendum, preferably drafted by your office's legal counsel.

3) If absolutely necessary, draft a new addendum only with the assistance of your broker and/or legal counsel.

Check out the Standard Forms catalog to see all of the available addenda and contact the PAR Solutions Center to keep PAR up to date on your needs for new ones. If PAR does not have the form you need, check next with your broker. The contract term you need may be commonly encountered by your office and your broker may have had legal counsel draft a standard office addendum specific to this issue.

If none is available, be very careful. The drafting of a non-standard addendum by a REALTOR® may at times rise to the level of unauthorized practice of law and is always a major malpractice risk. Modifying standard addenda carries the same risks. Non-standard addendum drafting should only be performed with the assistance of your broker, at a minimum, and preferably with the input of legal counsel. This is truly a case where spending a little time and money now can save you far more of both in the long term.