The 2007 Vacant Land/Lot Purchase Contract Presented by Jan Leighton, GRI, ePro & K. Michelle Lind, AAR General Counsel Revision Process Identify Problems Workgroup Process Comment Period Final Approval Primary Changes Format resembles 2005 Residential Purchase Contract Receipt section omitted Section title change Financing Commitment Contingency Cure Period BUYER ATTACHMENT Use to educate the buyer Give to the buyer prior to submitting the offer Not part of the contract 1. PROPERTY SECTION Buyer and Seller identified. If sellers name is unknown, simply check as identified in section 9c which is the acceptance section. Incidental Improvements AS IS Close of Escrow COE is when the deed is recorded at the appropriate county recorders office. If either the escrow company or recorders office are closed on the COE Date COE occurs on the next day that both are open for business. Agree to take all actions in sufficient time to allow COE to occur on the COE Date. The buyer obligated to deliver to the escrow company immediately available funds and instruct lender to deliver funds in a sufficient amount and in sufficient time to allow COE to occur on the COE Date. Possession Seller agrees to deliver possession to the buyer at COE The advisory in regards to the risks of pre- or post- possession agreements included Addenda Assumption/Carryback Buyer Contingency Domestic Water Well H.O.A. Additional Clause On-site Wastewater Treatment Facility Addendum to Vacant Land 2. FINANCING SECTION Most significant change Patterned after AAR Commercial Contract Clarifies financing contingency. Loan Status Report The AAR Loan Status Report (LSR) must be attached to every offer. It is NOT necessary that the buyer meet with a lender prior to submitting an offer Financing Indicate whether the sale is contingent upon Buyer obtaining a satisfactory financing commitment within Financing Commitment Contingency Period. Financing Commitment Contingency If the sale is contingent upon Buyer obtaining a satisfactory financing commitment, Buyer has thirty (30) days or specified number of days after the Contract acceptance (Financing Commitment Contingency Period) to obtain a financing commitment satisfactory to Buyer in Buyers sole discretion. Prior to the expiration of the Financing Commitment Contingency period, buyer shall deliver to seller and escrow company notice that Buyer has not received such satisfactory financing commitment or buyer shall be deemed to have waived the financing commitment contingency and any right to cancel due to financing. Financing Application Must complete within 10 days, unless previously completed Buyer and Seller must promptly provide to lender all necessary documents Buyer instructs the lender to provide loan status updates to Broker(s) and Seller. Appraisal Contingency Contingent upon an appraisal of the Property for at least the sales price during the Financing Commitment Contingency Period Partial Release Partial Release: Buyer and Seller agree that any partial releases will be addressed under Additional Terms and Conditions or attached Addendum. Subordination If applicable, indicate whether Seller carryback financing is to be subordinated to a construction loan. If Seller agrees to subordination, such subordination shall only be required if the Seller Carryback financing is not in default and if the Seller approves the terms and conditions of the construction loan to be recorded as a senior loan. If seller subordinates the seller carryback financing to a senior loan, the seller acknowledges that in order to protect the seller carryback financing, the seller may have to make payments on the senior loan if the senior loan is in default. 3. TITLE AND ESCROW SECTION Changes primarily in formatting. Title and Vesting Buyer will take title as determined before COE. Buyer advised to obtain legal and tax advice. Title Commitment and Title Insurance Escrow company is instructed to deliver Title Commitment directly to the buyer and seller. Seller will provide the best title policy available. Additional Instructions Send notice of the pending sale to any HOA. Allocate escrow company fees equally. Send copies of all notices. Provide the broker(s) access to escrowed materials and information. Record the Affidavit of Disclosure at COE. Prorations, Expenses and Adjustments Taxes: prorated through COE, based upon the latest tax bill available discrepancy between the latest tax bill available and the actual tax bill handled as a Post Closing Matter Insurance: If an assignment, the current premium shall be prorated through COE Rents, Interest and Expenses: prorated through COE any rents received after COE handled as a Post Closing Matter Deposits: credited to Buyer or paid to Buyer Post Closing Matters Any item to be prorated that is not determined or determinable at Close of Escrow as a Post Closing Matter by appropriate cash payment to the other party outside of the escrow when the amount due is determined. Agricultural Foreign Investment Disclosure Act If applicable, Buyer and Seller agree to comply with the Agricultural Foreign Investment Disclosure Act to make the required disclosures to the U.S. Department of Agriculture. Tax Deferred Exchange Advised to consult a tax advisor regarding advisability of a tax deferred exchange Agree to cooperate provided COE is not delayed 4. DISCLOSURES SECTION Vacant Land/Lot Seller Property Disclosure Statement (VLSPDS) AAR VLSPDS form is now specifically required. Seller shall deliver within 5 days after contract acceptance. Buyer has the Inspection Period or 5 days after receipt of the SPDS, whichever is later, in which to provide notice of items disapproved. Additional Disclosures any information known to Seller that may adversely affect the Buyers use of the Property any known pending special assessments, association fees, claims, or litigation articles of incorporation by-laws; other governing documents; and any other documents required by law financial statements, current rent rolls, lists of current deposits, personal property lists, leases, rental agreements, service contracts soils, Phase I, or other environmental reports in Sellers possession the most recent survey, if available any and all other agreements, documents Road Maintenance Agreement Seller shall provide to Buyer, within five (5) days after the Contract acceptance, a copy of any known road maintenance agreement affecting the Property. Wells If a well is located on the Property, or if the Property is to be served by a shared well, attach the AAR Domestic Water Well Addendum Seller shall assign, transfer and convey all of the water rights, or claims to water rights, if any, held by Seller associated with the Property. Problems Bankruptcy Probate Insolvency Violations Environmental hazards Affidavit of Disclosure If the Property is located in an unincorporated area of the county, and 5 or fewer parcels other than subdivided property are being transferred, the Seller shall deliver within 5 days after Contract acceptance. The buyer should deliver any disapproved items within the Inspection Period or 5 days after receipt, whichever is later. H.O.A Indicate whether the property is located within an H.O.A. Attach the AAR H.O.A. Addendum Changes During Escrow Seller agrees to immediately notify the buyer of any changes in the Property or the disclosures. Unless the seller is already obligated to correct or repair the changed item, the buyer has 5 days to provide notice of disapproval. 5. WARRANTIES SECTION Now separated from the Inspections section. Seller Warranties The seller warrants that at the earlier of possession or COE: Property will be maintained and repaired (if necessary). Any personal property included in the sale will be in the same condition as on the date of Contract acceptance. All personal property not included in the sale and all debris will be removed. Buyer Warranties Buyer has disclosed any information which may materially and adversely affect the buyers ability to close escrow Buyer is not relying on any verbal representations concerning the Property except as disclosed 6. DUE DILIGENCE SECTION The Inspections section is now entitled Due Diligence to reflect the fact that investigations and physical inspections of the Property are performed. Inspection Period is 15 days. Inspection Period Obligates the buyer to: conduct all desired inspections and investigations; investigate applicable building, zoning, fire, health, and safety codes; verify any material MLS information; investigate the presence of sex offenders in the vicinity or the occurrence of a disease, natural death, suicide, homicide or other crime on or in the vicinity consult the Buyer Advisory Square footage / Acreage Flood Hazard Sewer or On-site Wastewater Treatment System Sewer connection must be investigated during the Inspection Period. If septic or alternative system, use the AAR On-site Wastewater Treatment Facility Addendum Site/Soil Evaluation Specify whether a site/soil evaluation will be performed to determine the suitability of the Property for installation of an on-site wastewater treatment facility. If yes, indicate the party to perform the evaluation and the party that is to pay for it; the party indicated must complete the site/soil evaluation within the Inspection Period or as specified. Buyer has five (5) days after receipt of the report to provide notice of disapproval. Land Divisions If state, county and municipal requirements relating to the division or splitting of the property are a material matter, they must be verified by buyer during the inspection period. Broker(s) have made no representations, express or implied, regarding the ability to divide or split the property. Buyers initials required Roads If material, the buyer must investigate Survey Indicate whether a survey will be performed If yes, it shall be performed within the Inspection Period or specified days after Contract acceptance. Who will pay Survey instructions Buyer has five (5) days after receipt of results of survey or map to provide written notice of disapproval Buyers initials required Well/Water Rights Must be verified if material Buyer Acknowledgment Broker(s) are not qualified, nor licensed, to conduct due diligence with respect to the property or the surrounding area. Buyer is instructed to consult with qualified licensed professionals Buyer expressly releases and holds harmless broker(s) from liability for any defects or conditions that could have been discovered by inspection or investigation Buyers initials required Inspection Notice Prior to expiration of the Inspection Period, Buyer shall deliver to Seller a signed notice of any items disapproved. The AAR Vacant Land/Lot Buyers Inspection Notice and Sellers Response Form is available for this purpose. Inspection Period items disapproved shall be provided in a single notice. Buyer Disapproval Buyers disapproval no longer must be reasonable. If items disapproved, the Buyer delivers a notice of the items and elects to either: immediately cancel, or provide the seller an opportunity to correct the items disapproved, in which case: seller must respond within 5 days sellers failure to respond deemed a refusal to correct Seller agrees to correct If seller the agrees to correct any items: repairs completed in a workmanlike manner, and any paid receipts evidencing the corrections and repairs delivered to buyer 3 days prior to the COE date. Seller unwilling/unable to correct The buyer may cancel the Contract within 5 days after delivery of Sellers response. If the buyer does not cancel the Contract within 5 days, the buyer must close escrow without correction of those items. Additional Advisories Verbal discussions will not extend these time periods. Only a written agreement signed by both parties will extend response times or cancellation rights. Failure to give notice of disapproval of items or cancellation within the specified time period shall be deemed buyers election to close escrow without correction of any disapproved items. Sellers Responsibility Regarding Inspections Reasonable access to the Property for all inspections 7. REMEDIES SECTION Cure Period Breach Alternative Dispute Resolution (ADR) Litigation Why a Cure Period? 1. When a party fails to comply with the contract, it is often because their agent didn't tell them to perform or didn't follow up 2. Should help eliminate the question of whether a breach has been waived 3. Can bolster the enforcement of the time is of the essence clause and the ability to cancel the Contract for a breach. 4. Fairness When the Cure Applies When a party does or doesnt do something that would have otherwise been an immediate breach of contract. It is just a second chance to fix a problem before it becomes a breach. It does not address what happens when there is a breach. Cure Period If a party fails to comply with any provision of the Contract, the other party must deliver a notice to the non-complying party specifying the non-compliance. If the non-compliance is not cured within 3 days after delivery of the notice (Cure Period), the failure to comply becomes a breach of Contract. Cure doesnt apply to a contingency. A contingency is an event that must occur before a party is obligated to perform a contract. A condition, not a promise. If a contingency does not occur, the parties obligation to perform the contract never arises. So the failure to perform a contingency is not a breach. Potential Breach a broken promise violation of any of the terms or conditions of the Contract Cure doesnt apply to a contingency. A contingency is an event that must occur before a party is obligated to perform a contract. A condition, not a promise. If a contingency does not occur, the parties obligation to perform the contract never arises. So the failure to perform a contingency is not a breach. Breach The non-breaching party may cancel the Contract and/or proceed against the breaching party - subject to the Alternative Dispute Resolution obligations set forth in the Contract. In the event of buyers breach, the seller may accept the earnest money as the sole right to damages. Alternative Dispute Resolution (ADR) Agree to mediate any dispute or claim arising out of or relating to the Contract If mediation does not resolve the dispute, the unresolved dispute must be submitted to binding arbitration unless either party opts out within thirty days after the conclusion of the mediation conference by notice to the other. If a party opts out of arbitration, either party has the right to resort to court action. 8. ADDITIONAL TERMS AND CONDITIONS SECTION Blank Lines Important terms Compensation If the seller is obligated to pay, Contract constitutes an irrevocable assignment of sellers proceeds at COE. If the buyer is obligated to pay, payment shall be collected from buyer as a condition of COE. Copies and Counterparts A fully executed facsimile or electronic copy of the entire Contract is an original Contract. Counterparts are deemed originals as well. Days Days: All references to days are calendar days. A day begins at 12:00 a.m. and ends at 11:59 p.m. Calculating Time Periods The day of the act or event from which the time period begins to run is not included and the last day of the time period is included. Contract acceptance occurs on the date that the signed Contract is delivered to and received by the appropriate Broker. Acts that must be performed three days prior to the COE Date must be performed three full days prior. Cancellation A party who wishes to exercise the right of cancellation allowed in Contract may cancel the Contract by delivering notice stating the reason for cancellation to the other party or to the Escrow Company. Notice Unless otherwise provided, (i.e., for delivery of the title commitment or for acceptance), delivery of all notices and documentation required or permitted in the Contract must be in writing and deemed delivered and received when: hand-delivered; sent via facsimile transmission; sent via electronic mail, ifaddresses are provided; or sent by recognized overnight courier service, addressed as indicated in the referenced sections. Earnest Money If applicable, the form of earnest money and where it will be deposited Broker on Behalf of Buyer The broker and salesperson contact information is included on last page for addressing notice to the buyer & seller for agency confirmation, and for earnest money receipt. 9. SELLER ACCEPTANCE SECTION Essentially unchanged Broker on Behalf of Seller The broker and salesperson contact information is included on last page for addressing notice to the buyer & seller for agency confirmation, and for earnest money receipt. Offer Rejected by Seller If the offer is rejected, the seller should initial and date this provision. CONCLUSION The new Contract attempts to address many of the issues across the state involving residential lots, commercial and agricultural vacant land. Thank You!