What is an Escape Clause?

An escape clause is a clause in a contract which allows a party to break the contract without penalty under certain situations. Escape clauses are designed to prevent people from feeling like they are forced into complying with a contract when circumstances change. They are common in many real estate contracts and other types of agreements, and when establishing a contract with someone, it is advisable to read it carefully to see if there is an escape clause, and when it kicks in.

Real estate contracts are one area in which escape clauses are widely utilized. The contract is usually subject to a due diligence period, in which the buyer can order inspections of the house and withdraw from the contract if the inspections reveal problems which the buyer does not want to deal with. For example, a pest report could indicate that the home needs substantial work to deal with insects, or a contractor could point out that the home needs substantial renovations to be brought up to code.

Likewise, many real estate transactions include a funding escape clause. If the buyer cannot secure funding within a set time period, the seller can cancel the contract, and likewise, the buyer can cancel the contract as well. Sometimes, when people want to push a deal through quickly, they can write these common clauses out, indicating that they are entering a contract for a house as-is and that the sale is not contingent on financing.

Escape clauses are also available in the form of a cooling off period or 72 hour clause for big purchases like cars and appliances. The buyer can return the purchase within the cooling off period for a refund, assuming that no damages have been incurred. Likewise, items bought from door to door salesmen are subject to similar escape clauses, in part in recognition of the fact that people sometimes feel pressured into buying things they do not want from such salespeople.

Not every contract has an escape clause, and those that do usually have precisely defined terms which do not leave much room for error. People who think that they may need such a clause should make sure that it is written into the contract in terms which meet their needs, and people should also be cautious of abusing escape clauses. Sometimes, it is possible to be held liable under the argument that the contingency being cited under the escape clause is not sufficient for release from the contract.