What is a mutual release?

Congratulations.  You signed on the dotted line last night and you’re so excited to become a homeowner.

In today’s dynamic real estate market, we all know it was quite the emotional rollercoaster to get to this point and while you should be excited, today’s topic is two words that no buyer or seller hope to intentionally encounter:  mutual release.

If you’re reading this blog, odds are you might be considering signing or asking for a mutual release, so we’ll cut right to the chase.

What is a mutual release?

A mutual release is a document designed to be signed by both the buyers and sellers to cancel an agreement of purchase and sale.  When executed, this document cancels the agreement and “releases” all parties from any future liabilities or claims.

The most important point to underscore is that a mutual release requires the agreement of both parties (buyer and seller) and cannot be executed without both parties agreeing to the terms.

When is a mutual release used in Real Estate?

A mutual release is used when both parties wish to nullify an agreement of purchase and sale.  The two most common scenarios where a mutual release may be used are:

Conditional agreement - When a condition is not met

Buyers and sellers may set various conditions in their agreement of purchase and sale such as financing or inspection.  If these conditions are not satisfied within the particular time frame set in the agreement, a mutual release signed by both buyers and sellers enables both parties to essentially “walk away” from the deal.

Despite the name, in almost all cases it is one side who wants to be released from the deal and who must convince the other side to let them out.

In a conditional deal that has fallen through, the seller often has little choice but to sign a Mutual Release.  Given that conditions have short time frames, there may be an inconvenience to the seller, but it is rare to see a market shift where the seller can experience a significant loss if they needed to re-list and sell their property again.

Nonetheless, relisting the property and selling to someone else is an onerous task and most sellers may take some time to get over the fact that the deal is no longer and that they must move on.

On a firm agreement

In a today’s highly competitive seller’s market seeing conditions on an agreement of purchase and sale has become an exception rather than the norm, leaving buyers often making firm offers (without any conditions attached).

What if you gave or a “firm offer” and it got accepted by the sellers?  Can a mutual release still be possible?

When a firm deal encounters problems, it is most often on the buyer’s side, although it is no longer uncommon to see sellers who are having “seller’s remorse”.

Whether changing their mind or a change in circumstances that makes the purchase not desirable or possible, when a buyer wants out of a firm deal it can be quite challenging.

In this case, the buyer must convince the seller to agree to release them from the deal.  If you put yourself in the seller’s shoes for a moment, that is not an easy decision as they may have bought another home or made other plans whereas relying on their current home closing on a specific date.   If a seller refuses to consider a mutual release, you may still be bound by the agreement unless you can negotiate some form of compensation that may get them agree.

This is where the discussion may focus on the alternatives, which could include the buyer walking away without a mutual release and the potential legal consequences as a result.

This is also a time where having the right professionals working for you becomes critical. Your real estate agent and lawyer can establish a line of communications between the buyer and seller to better understand their intentions and remove the emotional aspects from the situation.

Whether you’re the buyer or seller, it is important to speak with your lawyer to seek proper legal advice to understand your options prior to signing a mutual release.

If you have any further questions, The Deeded team can connect you with one of our independent real estate lawyers and support you in any way we can.

Important Note: This article is not Legal Advice.  No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.