OFFER LETTER: REFUND CLAUSE

Refund clauses decide whether earnest money is returned to the buyer or stays with the seller. Done well, they’re clear, specific, and enforceable.

When Refunds Apply

At a minimum, your refund clause should cover these situations:

1.⁠ ⁠Title Issues – The title contains undisclosed annotations.

2.⁠ ⁠VAT Exposure – The property was previously leased, making the sale VAT-applicable.

3.⁠ ⁠No Fault of Buyer – The transaction can’t proceed due to reasons beyond the buyer’s control (e.g., a required signatory refuses to return to the Philippines to sign the DOAS).

Suggested wording:

“The SELLER agrees to refund the full amount of Earnest Money paid by the BUYER within X calendar days from notice in the event that:

1.⁠ ⁠The ‘TITLE CONDITION’ section of this letter is not satisfied; or

2.⁠ ⁠The SELLER cannot produce the documents listed under ‘DELIVERABLES’; or

3.⁠ ⁠The SELLER commits any act or omission, whether intentional or due to negligence, that prevents the sale from proceeding, without any fault on the part of the BUYER.”

TITLE CONDITION

The owner must hold the property in fee simple, free and clear of any liens or encumbrances other than the HOA’s Deed of Restrictions.

MOST IMPORTANT DELIVERABLES

a. Original Title/s

b. RPT Tax Clearance

c. Cert. of Non-Delinquency from PMO

d. OR for Utilities

e. Cert. of Non-Tenancy — must specifically state: “...NEVER leased out...”

These are the critical documents. Others can usually be obtained with less difficulty.

Force Majeure Clause to Consider

Refund if the property becomes unfit for its intended use due to events beyond either party’s control (e.g., acts of God, war, fire). Recommended for transactions with long lead times, such as installment purchases.

The “Penalty to Seller” Debate

Some buyers insert a clause penalizing the seller for backing out—such as when they accept a higher offer mid-deal and simply return the earnest money.

While fair in principle, most sellers reject these clauses outright, which can damage trust and kill the deal. Unless both parties are unusually cooperative, I don’t recommend including them—at least until this practice becomes an accepted market norm.