Friday, May 4, 2018

3 Purchase and Sale Agreement Pitfalls

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You’ve found the ideal building to house your business. Convinced are you that you’ve negotiated a fair deal with the seller as armed with your lender pre-qualification letter you volleyed until match point. 

Now, the seller has served, into your court, an agreement - eleven pages of single spaced boiler plate - which requires your signature to proceed. And to think - this all started with a handshake.

Ok. So now what? Well, you’ve several options. You can simply scan the document and locate the deal points - price, contingency, closing time frame, etc, sign away and figure the rest will take care of itself - not recommended.

Or, you can employ a real estate attorney to scour the document and craft language which will benefit only you to the detriment of the seller - also not recommended.

Or, you can seek advice from your agent - which will generally be met with a disclaimer about his inability to provide legal counsel because he’s not qualified.

Recommended, therefore, would be a combination of the three - scan for deal points, ask your agent what areas should concern you as the buyer, and then seek legal counsel for those specific areas.

Let’s spend a few minutes and discuss some points that generally get negotiated in a commercial real estate purchase and sale agreement. As a back drop, I will assume you’ve been asked to sign a standard purchase and sale agreement - most commonly the AIR CRE form.

Representations and Warranties. This section - more than any - gets the most attorney play. Seller counsel will argue his client is representing nothing - not even the address is correct. I jest, of course, but barely. Buyer counsel would have the seller warrant all current and future faults - forever. Once again, hyperbole. Central here - the seller has authority to enter the agreement, perform the duties of seller, and transfer title.

“As Is” Purchase. Generally, this clause gets misunderstood. Sellers believe they are selling the premises with all faults and that the buyer MUST accept the condition of the building in its present condition. Buyers see this clause and worry about a latent issue. Reality is, most deals contain a contingency period. During this time a buyer is able to study all aspects of the real estate and approach the seller if something untoward is discovered. The “as is” typically refers to a buyer relying upon its own investigation and not relying upon a seller representation.

Waiver of Contingencies. If, during a contingency period, a buyer discovers a “show stopper” - a roof in need of repair, an easement that diagonals the parcel, an appraisal that is short of value - he may disapprove the condition. Remedies range from cancellation and full deposit refund to seller agreement to mend the issue. Commonly, these objections must be done in a time frame and should notify all parties in writing.

So, use this framework to prevent getting aced out of your agreement negotiation.