The fee compensates the seller for a failed transaction attributable to the buyer, typically financing failure or regulatory denial. It is frequently the seller's exclusive remedy in lieu of specific performance.
Fee size signals deal certainty.
Alternative Names:
Reverse Break Fee|Buyer Termination Fee
Why it Matters?
Whether the fee is the exclusive remedy determines whether a buyer can walk by paying it, which is the most consequential provision in any leveraged transaction. A seller that accepted an exclusive reverse fee has sold an option rather than a company. Conditional specific performance provisions permitting enforcement where financing is available preserve the seller's position while accommodating genuine financing failure.
Frequently Confused with
Related terms
Frequently asked questions
What does an exclusive reverse fee mean?
What preserves the seller's position?
