By Charlie Moody
Assistant Director, Regulatory Affairs Division
Bokers continue to grapple with the questions: “What can I add to standard form purchase contracts?” “What is drafting?;” “When have I crossed the line?” Commission rule A .0111 allows brokers to complete contract forms when authorized to do so by the parties. In other words, they may “fill in” the blanks in preprinted contract forms, usually with dates or dollar amounts, but may not draft contracts or special contract provisions between other parties.
Any document imposing an obligation between two or more separate persons or entities and supported by consideration is generally a contract, including a “letter of intent” or “memorandum,” an additional provision or addendum to a contract, a lease, option, etc. No matter what such documents are called, they are often actually contracts which must be drafted by an attorney, not a broker.
Brokers are advised to always refer parties to an attorney to have a contract, addendum or special provision drafted when an appropriate form is not available. Moreover, do not use documents from prior transactions that were created for other parties as “forms” to be completed for current transactions. Every situation is unique and may need different language to adequately protect a user’s interests. Don’t draft atypical, special provisions for insertion in contract forms.
But why can’t I?
The Commission cautions against drafting additional terms because it could lead to at least two potential problems:
(1) It could constitute the unauthorized practice of law, and
(2) it often results in the use of vague terms which may confuse the parties or otherwise create problems.
The “practice of law,” as determined by statute and court decisions, includes the drafting of documents which define the rights of others. “Drafting” means composing phrases and sentences to convey an intended meaning by choosing which words to use and the order in which to use them. Therefore, although brokers may believe they are capable of competently drafting contract terms, they are not legally authorized to do so unless they are also Iicensed attorneys. “If”, “then”, “must”, and “shall” are all words that would definitely indicate contract terms are being drafted.
Further, non-attorney brokers drafting contract provisions increase the possibility of vague terms/conditions being used. Vague terms/conditions confuse the parties as to their contractual obligations and/or inadequately protect their interests.
A common type of vague contract term is adding a condition instead of a date. For example, a closing date described as “when the buyer gets financing” is too vague. When is that? Is it when the buyer gets loan approval? Or is it when the lender gives final authorization to disburse? Lenders have been known to back out at any time prior to the disbursement. How is the contingency fulfilled? What happens when ten months have passed and the buyer doesn’t have a loan yet? Has there actually been a breach? Can the seller terminate?
Another commonly added condition requires a party’s satisfaction with certain occurrences. Who determines the standard of “satisfactory”? The buyer? The seller? What if they disagree? A provision drafted and added to or deleted from the contract is especially problematic if the change conflicts with some other term of the contract. Contracts work as a whole with one paragraph often referring to another. Brokers may not always consider that a change to a provision in paragraph 12 may affect rights in paragraph 5.
Parties sometimes disagree over the meaning of a contractual term, and its interpretation is then ultimately determined by the courts. When a court considers a term to be so vague that it can be interpreted two ways, the court usually will interpret it in favor of the party who did not draft it. Therefore, a broker who drafts vague terms does so to the detriment of his or her own client, and risks disciplinary action by the Real Estate Commission, injunctive relief through the State Bar, as well as the possibility of criminal charges.
The Bottom Line: Do not draft contractual terms. If the language supplied by a form does not appropriately address the issues, refer the parties to their attorneys. If another agent or a party to the transaction or even an attorney drafts a contractual term, review it carefully, but also advise your client to have an attorney review the language to see if it meets the needs of the client. Be particularly concerned about any provision which includes a subjective standard (such as “satisfactory”) or is otherwise vague as to fulfillment, does not set a deadline for fulfillment, or does not specifically require notice to the other party and specify how parties are to notify each other of fulfillment.
If you are adding words or conditions other than referencing preprinted addenda, you are likely to be drafting contract language. To ensure that you are best serving your clients and avoiding violating the law as well as treating all of your customers fairly, be sure that drafting the rights and obligations of the parties to the transaction is left to a licensed attorney who can create documents or language specifically for that client or customer.
This article came from the October 2017-Vol48-2 edition of the bulletin.