Are "Free Look" Provisions in Real Estate Purchase Contracts Still Viable?: An Analysis of Steiner v. Thexton

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For many years, the prevailing practice in the real estate industry, particularly in a buyer’s market, has been to provide a purchaser of development property a period of time to conduct due diligence and process entitlements and to allow such purchaser to terminate its purchase contract for any reason or no reason at all, in the purchaser’s sole discretion, and receive a full refund of any earnest money deposits.

On March 18, 2010, the Supreme Court of California reversed a 2008 decision by the California Court of Appeal for the Third District, Steiner v. Thexton, in which the Court of Appeal had held that such a real estate purchase contract was nothing more than an unenforceable option to purchase, which was void for lack of consideration where the buyer retained absolute and sole discretion to elect not to continue with the deal.

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