Introduction. Regardless of how active (or inactive) the market is, sellers’ brokers should always be on the lookout for “red flags.” These are the often harmless-looking provisions that, if ignored, can later come back and bite sellers. Here are a few. Note that this article refers to the 2022 OREF Sale Agreement, so section and line numbers may be different today):
The “Or Assigns” Provision. First, be aware that deep in the 2022 OREF Residential Sale Agreement (Sec.37(6)) is a single sentence that many Realtors® may be unfamiliar with. It states:
“…Buyer’s rights under this Agreement, or in the Property, are not assignable without the prior written consent of Seller.” (Emphasis added.)
Where does this issue come up? When the Sale Agreement offer includes the words “or assigns” after buyer(s) names in Section 1. There is a reasonable chance when requested by buyer, his/her broker dutifully does so without inquiring about the intent or purpose of the provision. There is also a reasonable chance the buyer’s broker may not be aware of Section 37(6) saying that seller’s consent is required.
May Seller Impose Conditions on the Assignment? So, if the offer is accepted with the “or assigns” language inserted, does the seller have any say in whether they will give or withhold consent? Clearly yes – assuming they are aware that Section 37(6) gives them that right. It is my opinion that accepting an offer on the OREF Sale Agreement with the words “or assigns” inserted after the name of the buyer does not mean the buyer is free to assign the Sale Agreement without seller’s consent.
Below is a short summary of the variety of issues that arise from these two seemingly innocuous words unless fully vetted by sellers before accepting the offer. The main issue is whether seller can condition their consent upon other factors, such as:
- Requiring that the assignee have the same or better financial credentials as the buyer-assignor?
- Requiring that the buyer-assignor remain as a guarantor of the assignee’s performance?
There are at least two very different reasons for a buyer’s use of the “or assigns” language:
- Buyer is merely acting as a middleman,[1] often with the idea of tying up the property and then “flipping” it, to use the vernacular sense. This business model is invariably coupled with the idea that the buyer intends to improve the property, either cosmetically or more substantively, and make a profit upon resale. While there should be no particular concern to the seller in this transaction (assuming the buyer is properly vetted), there should be – in my opinion – a heightened due diligence concern to third-party buyers who acquire such property. But that is the subject of another post.
- As is seen in more commercial ventures, the buyer is using the “or assigns” language to acquire a property and then create a holding entity, such as an LLC, to go into title. The only issue of significance here is for sellers to make sure that the original buyer (who has presumably already been vetted for their financial bona fides) does not create the holding company that is controlled by a new member with whom seller is unacquainted. This condition can and should be included in any consent to the assignment.
Risk Management Tip. There are some individuals who believe they can, without a real estate license, purchase real property using this “or assigns” verbiage, and flip the property to a third-party, taking profit from the difference between the purchase and re-selling price. I do not recommend this business model, since (a) the Oregon Real Estate Agency (at least in the past) has taken the position that this practice violates the licensing law, and can require the flipper to “disgorge” their “illegal commission” because it was obtained without an Oregon license[2]; (b) the flip requires the assignee, often a consumer, to understand and appreciate what is occurring, since by the time of the assignment, all of the standard buyer due diligence contingencies could have expired; and (c) it will raise the ire of every broker in the neighborhood, and thus result in a stream of complaints to the Agency.
Conclusion. So, the take-away here is that when buyers add the “or assigns” text to their offers, seller and listing agent antennae should go up. While there may be perfectly legitimate reasons for this approach, it bears serious vetting by sellers before accepting the offer. Waiting until after acceptance could be too late. ~ Phil
©Copyright 2022 QUERIN LAW, LLC. Phillip C. Querin
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[1] To the woke crowd, forgive me for the use of this allegedly misogynistic term. But according to Online Etymology Dictionary, here, the word “middleman” means, “…in the trading sense, ‘contractor, negotiator, broker,’ especially one who buys merchandise in bulk and sells it in smaller quantities to retailers or other traders,” 1795, from middle (adj.) + man (n.).” Accordingly, I have deferred to 200+ years of linguistic consensus saying it’s OK for me to use this word in mixed company. Whew!
[2] If you doubt the Agency’s authority to do this, take a close look at the list of activities for which Oregon requires a real estate license before earning a commission (ORS 696.010 (17), then consider ORS 696.040, which provides that “(o)ne act or transaction of professional real estate activity is sufficient to constitute engaging in professional real estate activity, within the meaning of this chapter.”
