- 1. Terms of Financing
- 2. Security Deposit
- 3. Due Diligence
- 4. Closing Costs
- 5. Liquidated Damages
- 6. Title
Commercial purchases and sales are often a lengthy and complex process. Though most commercial real estate dealings have a similar approach, each has its own intricacies. Hence, the rights and responsibilities in a purchase and sale agreement may vary based on various factors.
For any type of real estate transaction, it is crucial to have a well-drafted, legally binding purchase and sale agreement. The contract specifies the rights, liabilities, and obligations of each party. It also outlines the steps to close the real estate transaction and the remedies in case a dispute arises between the buyer and the seller.
Discussed here are the key elements that should go into a real estate purchase and sale agreement, especially commercial transactions.
Commercial real estate purchases are hefty investments – and most sellers do not support cash transactions. As per commercial purchases and sales statutes, the buyer should pay the entire purchase price to the seller. This is regardless of whether the buyer could obtain a financing option to pay the purchase price.
In lack of a financing contingency, the buyer will be held for breach of contract if they are unable to pay the price. However, if the financing contingency can be successfully negotiated with the seller, then it should be clearly defined in the agreement.
If the provision for financing contingency is included in the contract, the buyer has the right to terminate it under the condition that they cannot get a satisfactory financing option.
Not sure what is financing contingency and how to negotiate for the same? Work with an experienced real estate attorney who can successfully negotiate with the seller to protect your best interests and close the deal.
In most commercial purchases and sales, a security deposit will comprise a minimum of 3% of the property’s purchase price. However, a primary concern here is whether or not the deposit is refundable when the contract terminates. While both parties will negotiate for their best interests, the agreement typically includes provisions somewhere in between.
For example, the seller may negotiate for the security deposit to be non-refundable if the “free look” period for property due diligence expires for the buyer. The seller may also not refund the deposit if the property is handed over in a poor state as otherwise mentioned in the agreement.
If these provisions are not clearly stated in the contract, it may result in disagreements. In such cases, it is crucial to work with property dispute lawyers who will negotiate with the other party and handle the proceedings in your best interests.
From a buyer’s perspective, commercial purchases and sales agreements should include property inspection contingencies. This provision allows the buyer to walk away from the transaction if the property's due diligence reveals major flaws in the structural condition that require costly repairs. This is an integral part of any commercial real estate buying process and should not be overlooked.
Not just commercial purchases, but inspection is a crucial part of all major commercial real estate lease types.
Another important element that should go in a real estate agreement is who will pay for the closing costs – the buyer or the seller. At the time of closing a deal, either of the parties needs to pay certain fees such as title search fee, escrow fee, transfer tax, title insurance, etc. The real estate agent should negotiate on who is liable for each of these fees.
Commercial purchases and sales agreements should include provisions for liquidated damages. Liquidated damages typically arise on the buyer’s end. These may include any type of physical damage caused to the property. The contract may include statutes mentioning the non-refund of the security deposit if the buyer is held responsible for liquidated damages and breaches the contract.
The agreement should have provisions for the seller to completely disclose known prior rights on the property title. It should also include remedies for the purchaser in case the seller does not disclose the matter.
As mentioned earlier, commercial purchases and sales can be multifaceted. Therefore, it is crucial to have a contract that clearly outlines each party’s rights, obligations, and liabilities for the above conditions. Working with an attorney will help understand the real estate law that protects the rights and responsibilities of the buyer and the seller.
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