Commercial Real Estate -The Need for a ContractApril 5, 2018 | By Erik Lincoln
Commercial real estate is transferred by deed, so why the need for a contract? Well, buyers need time to perform due diligence before they are ready to purchase. And, buyers do not want to spend a lot of time and money on evaluating only to find the owner to sell to someone else. They need to ensure that for a period of time, they can perform due diligence with certainty that the property is theirs if they choose to proceed. Similarly, the owner does not wish to commit the property to the buyer only to have the buyer get cold feet and back out. In short, each party wants the other to be committed. The parties usually accomplish this with an executory contract.
What is an executory contract? An executory contract is one in which the parties promise to do something in the future. In the case of commercial real estate, the buyer agrees to purchase, and the seller agrees to sell, assuming all of the closing conditions are satisfied.
Buyer’s Perspective – The buyer will use the contract as a way of unearthing as much information about the property as it can. In particular, the buyer will seek to persuade the seller to represent facts about the property in the contract. The buyer will also use the contact as a means for obtaining time to gain information about other matters, such as whether buyer can obtain a loan. The buyer will also use the contract as a way to allocate risks to others away from itself.
Seller’s Perspective – Seller’s goal is to convey the property, receive its money, and retain little or no liability. Therefore, a short contract with few representations will be in seller’s interest.
A commercial real estate attorney can draft a Purchase and Sale Contract for commercial real estate that is well tailored to your transaction.