What is a Hubbard Clause in a Real Estate Transaction?

What is a Hubbard Clause in a Real Estate Transaction?

Hubbard Clause

A Hubbard Clause is an addendum or rider to a residential real estate purchase agreement that makes the purchase contingent upon the Buyer selling their own home first.  Russo & Rizzio has considerable experience dealing with Hubbard Clauses.  It’s important that you hire an attorney familiar with how they work and the potential pitfalls.  They are not common in Fairfield County, but we do see a few each year.  They come in many different forms, but the standard terms are:

  1. The Buyer may get out of the contract and get their deposit back if they don’t have a contingency-free, fully executed contract by a particular date.
  1. The Seller shall have the right to keep the property on the market and solicit and negotiate other offers as long as the Hubbard is in effect. However, the seller must notify prospective buyers of the existence of the contract and Hubbard Clause.
  1. If another Buyer makes an offer, the original Hubbard Buyer shall have three days to release the Hubbard clause and meet the new Buyer’s offer if the new Buyer’s offer is higher.

If you’re the Buyer, the Hubbard Clause has the benefit of allowing you to commit to the seller without fully committing until your home is sold.  If you’re the Seller, the Hubbard Clause allows you to lock in an interested buyer, as long as they can sell their home.

The Challenge of a Hubbard Clause is that it’s dependent on something that may very well not happen, the sale of the Buyer’s house.  It can be particularly frustrating for the seller because the seller has no control over how the Buyer’s home is priced or shown.  With that in mind, we recommend that Sellers and their agent take a hard look at the marketability of the Buyer’s property before entering into a Hubbard Clause agreement. A Hubbard can give sellers a false sense of security that they have a firm deal to sell their home.  Though a seller can always sell to another buyer if they come along and the Hubbard buyer cannot perform, the Hubbard still serves as a barrier, however small, to other prospective buyers.

When is the Hubbard Released?  Traditionally, a Hubbard is released once the Buyer has a valid, fully-executed contract to sell their home without a mortgage contingency.  This may mean not releasing the Hubbard until the mortgage contingency on the Buyer’s sale is released.  In releasing the Hubbard, it is also often necessary for the Buyer and Seller to agree upon a closing date that syncs up with the Buyer’s Sale.  It’s important that the Hubbard Clause dictate exactly when the Hubbard will be released.  Buyers will often try and insist that it remains in effect until they actually close on their sale and Sellers will argue the clause is released the moment their Buyers accept an offer.  A well written contract will avoid this ambiguity.

Don’t let them move in.  A Hubbard Clause in an effective tool that doesn’t come with much risk for either side.  The one exception to that is when Buyers seek to rent the home before closing.  Any occupancy by the Buyer before a real estate closing can be complicated and lead to unintended issues at the closing table.  Hubbard buyers, however, should absolutely not be allowed to occupy the premises before closing.  If the Buyer’s home doesn’t sell, it becomes incredibly more difficult for the Seller to move on to a different Buyer if the Hubbard Buyer is living in the property.  We strongly urge that Hubbard Buyers not be allowed to lease or occupy the premises before closing.

Have other questions? Call us at 203-254-7579.