Are you going to buy a house but still have a house of your own to sell? Then you may not want to risk having 2 houses later. After all, that’s what happens to you when you buy a house but you can’t get your old home sold.
To eliminate that risk, there is a solution: the No Risk Clause.
This is a clause that you put in the purchase agreement and it governs that you may cancel the purchase of your new home IF you don’t get your old one sold.
We explain here super simple how that works using an example.
Simple explanation of the No Risk Clause in an example
Jip buys Janneke’s house on July 1 for €500,000. Jip is now living in another owner-occupied house and this house must be sold as soon as possible. But suppose it fails to sell this house? Then Jip will have 2 houses than of course he doesn’t want that. To avoid any risk, when he buys his new house, he agrees with saleswoman Janneke that a No Risk Clause will be included in the purchase agreement.
Joanna thinks it’s all nice and all, but of course she wants clear agreements on what the terms are for the sale of Jip’s old house. How long does Jip have to sell his house? Now what if Jip sells his house at a loss? And suppose the buyers of Jip’s home drop out anyway, what then?
Therefore, Jip and Janneke agree to the following in the No Risk clause:
Jip can rescind the sale of Janneke’s home in writing if Jip’s home at the A. Hofmanweg 5A in Haarlem has not sold unconditionally before August 1, 2023 for a purchase price of at least €400,000. Meanwhile, Janneke may continue to put the property up for sale.
This makes it immediately clear which property to sell (A. Hofmanweg 5A Haarlem), until when the buyer has time to be allowed to sell their own home (August 1, 2023) and that Jip’s home is unconditional (so there is then no financial reservation more etc.) must have been sold.
What if there is another buyer with a No Risk Clause?
Suppose another buyer comes on July 15 and his name is Annie (buyer II). Annie makes a great offer on the property then where Jip (buyer I) bought the property for. In fact, she is offering €525,000 without reservation of financing. Joanna (seller) indicates to her selling broker that she is in favor of the offer from Annie (buyer II) wants to go.
However, the property has already been sold to Jip, so how should this be settled now?
Closing purchase agreement with2nd buyer
This is as follows. First, Joanna enters into a purchase agreement with buyer II (Annie) in which she includes a clause providing that Joanna may rescind the purchase with Annie (buyer II) as the sale with Jip (buyer I) will go ahead anyway. For that, you can this clause use this clause.
Next, it is important that the purchase agreement with Annie be signed by buyer II+seller. This is because after this, the legal reflection period starts to run. Suppose that purchase agreement is signed on Monday, then after Thursday 11:59 p.m. it will be clear whether the sale will go through or not. By the way, if you want to know how that legal cooling-off period works, just re-read this article or watch this explainer video.
It is now Friday morning and the reflection period is over. Annie (buyer II) did NOT cancel the sale and so is now stuck with the sale.
Informing first-time buyers and giving them the choice
From that moment (that Friday), Joan or her selling broker goes to Jip (buyer I) and gives him this message verbally as well as in writing:
“Jip, I have bad news. I sold the property to yet another person. According to the No Risk Clause, this means you have to make a choice now. You have 2 choices and MUST choose one:
Choice 1: You waive the right to rescind the sale. This means that the No Risk reservation (selling your own home) and also all other reservations (including the financing reservation) expire.
Choice 2: You waive this purchase and we will then sell the property to Annie (buyer II).”
If Jip does not respond to the seller or selling broker within 2 business days, the agreement with Buyer I is dissolved.
What do you need to know about the No Risk Clause?
If you and property sold with a No Risk Clause, you don’t necessarily have to sign a purchase agreement with a2nd buyer. But it is so safe. You thereby prevent buyer 1 from withdrawing and buyer 2 from also withdrawing and you will soon have no buyer at all.
Be well informed about the deadlines that apply, both about the effect of the legal cooling-off period and as of when exactly the 2 business days start to run.
This article is based on the NVM standard No Risk Clause. In terms of content, you can and may modify anything in that clause. For example, you can also agree that the seller has not 2 business days, but, say, 12 hours to make a choice after receiving written notification at his (to be specified) e-mail address that there is another buyer.
The No Risk Clause arranges (if you apply it properly) for the seller to capture both Buyer I and Buyer II and not run out of buyers later. It should still make the sale watertight. For the buyer, this No Risk Clause ensures that the buyer does not end up with 2 houses. However, the disadvantage for the buyer is that if another buyer presents himself, he must then also immediately waive all other resolutive conditions such as the financial reservation. And that can be quite tricky. If you’re unlucky and you take the risk, you could be in quite a bit of trouble if you still don’t sell your old house and/or if you can’t get financing for the new home.
In our opinion, the No Risk Clause is more protective of the seller than the buyer for which it is actually intended.