Backing Out of a Deal

Client Question: Can I back out of an offer to lease if I already signed it? No earnest money has been paid.

In my opinion–yes. I know this would be an unpopular answer, especially to brokers looking to close the deal, but let me explain.

While there has been a "meeting of the minds" on leasing a property, offer letters fail to discuss a lot of the pertinent details of the transaction. Matters such as pets, the maximum number of occupants, or what to do in cases of default are tackled in the lease contract–not the offer letter.

In practical terms, I'm not sure the tenant would even be willing to sue the lessor. The monetary implications, coupled with the Philippines' sluggish legal system, just don't make sense.

This is the same reason I don't advise paying some form of earnest money to lock in the deal. Unlike sale contracts, lease contracts are not as straightforward.

But if the tenant wanted his earnest money back and the lessor refused to return it, maybe the tenant would be more willing to sue the lessor.

So, here's my advice:

1. Offer letters should merely "reserve" the property for a prospective tenant for a specified period of time (e.g., 7 calendar days); no earnest money should be paid

2. Lessors should include a statement stating his acceptance of the offer letter is still subject to the terms of the contract

3. Better yet, lessors should have prospective tenants use their preferred offer letter and lease contracts

Just my two cents.