Everyone, even lawyers, has a preferred contractual form they are most comfortable working with. However, we don’t always get the luxury of choosing the form of the contract presented during a transaction. Here are a few of the major differences between the MAR and GCAAR contracts of sale to help you navigate an unfamiliar contract.
Jurisdiction considerations:
The GCAAR is preferred in Montgomery County as there is a specific “Montgomery County” addendum already available that will include everything that is required to meet all the Montgomery County requirements. Beyond that, the GCARR really can be used in any jurisdiction, but you will need to ensure you include all addendums to meet local requirements. Working through the GCAAR amendments can be tedious, so you may want to reach out to a trusted title professional to assist you.
The MAR can be used in any jurisdiction, and again, you do need to ensure the proper addendums are included for local compliance. As the MAR was updated in October 2022 to be a true “as is contract” unless addendums are included, the property will be sold completely as it appears on the specified date therein (typically within 5 days of closing). The MAR addendums have been streamlined as a result. However, with the inclusion of the revised “Inspection Addendum” the buyer can now unilaterally terminate the contract based on the inspection results. While the GCAAR also contains the language “as is” the body of the contract itself contains the provision related to the date of the inspection, thus arguably inviting grounds for conflict should an inspection yield negative results.
Risk of Loss:
The GCAAR is very clear that the risk of loss (meaning damage to the property by something like a fire or a flood) “remains with the seller until the execution and delivery of the Deed of Conveyance to the Buyer at Settlement.” The MAR specifies that the risk of loss passes to the buyer when legal title passes (which for our purposes is the completion of settlement) or possession is granted to the buyer, whichever occurs first. This can get tricky if settlement is delayed for some reason, but the parties agree to allow the buyer to move in early. The problem is that the buyers homeowner’s insurance likely will not take effect until the settlement has been concluded, but under the terms of the contract, the seller’s insurance would no longer be liable to cover the loss, leaving the property without any insurance coverage protection.
Settlement cost provisions:
The MAR specifies that the buyer agrees to pay all settlement costs and charges with the exception of costs related to clearing the title and releasing any encumbrances (liens) in the name of the seller. The MAR does allow for the seller to be charged additional fees required should the seller elect not attend settlement as scheduled (such as a RON, outside notary etc.) In contrast, the GCAAR provides that fees for deed preparation, a portion of the settlement fee, releases and title resolution can all be collected from the seller.
Resolution of Disputes:
The MAR requires mandatory mediation as a first step to resolution of any disputes arising thereunder, whereas the GCAAR suggest mediation as a first step, but does not require it. Thus, using the GCAAR leaves the parties open to the extreme costs of defending litigation as opposed to the relatively nominal expense of mediation.
Final note:
Keep in mind that you can always revise or remove any contract terms! So for example, if you are using the GCAAR you might want to write in a mandatory mediation provision, or if you are use the MAR you might want to adjust the risk of loss language.
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This article originally ran in the March 2023 Chesapeake Real Producers.