by Barbara Strapp Nelson

When is a signed contract not a binding contract? In New Jersey, when a realtor prepares a contract for a residential purchase and both parties sign it, the contract may not be binding for a least three business days. This is due to an “Attorney Review Period” which is required to be included in such contracts.

The “Attorney Review Period” came about as a result of litigation between the New Jersey State Bar Association and the New Jersey Association of Realtor Boards in the 1970s, in which the New Jersey State Bar Association filed a class action to prevent all licensed real estate brokers from preparing contracts for the purchase and sale of real estate, alleging that such action constituted the unauthorized practice of law. The New Jersey Supreme Court approved a settlement in the case that resulted in regulations being enacted that required that all real estate agent or broker-prepared contracts for one-to-four family residential properties and vacant one-family lots to be subject to attorney review. This settled the issue as to whether having realtors prepare a contract was practicing law and also would permit parties entering into agreements to have an opportunity to have them reviewed by an attorney before they became binding. The regulations promulgated are set forth in N.J.A.C. 11:5-6.2 and went into effect as of February 15, 1984.

The three-day review period commences with the day following delivery of a fully signed contract to the buyer and seller and does not include weekends or legal holidays. If the contract is not disapproved within the three day period, it becomes binding. If the contract is disapproved, it is effectively terminated and the parties are free to negotiate revisions to the terms. As a result, the terms amending the contract do not need to be agreed upon within the three-day attorney review period; the contract only needs to be disapproved to keep it from becoming binding. No reason needs to be given for the attorney disapproval.

Because the regulations only apply to realtor prepared residential contracts, a contract for the purchase and sale of residential real estate that is prepared by an attorney will be binding upon execution of all parties, unless the contract specifically includes an attorney review provision.

The three-day attorney review period also applies to realtor-prepared amendments that materially modify a contract subject to the review period.

For further information about binding real estate contracts contact Barbara Strapp-Nelson at bsn@stark-stark.com or 609-896-9060.

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