A successful real estate transaction starts with a strong foundation—your purchase agreement. When it comes to commercial real estate, a one-size-fits-all approach usually doesn’t work. While many agreements include standard provisions, key details can vary significantly from deal to deal, and relying on templates may not fully protect your interests.
This article outlines the essential components of a solid real estate purchase agreement. Contact your Carlile Patchen & Murphy (CPM) attorney today if you need tailored advice on your transaction.
Why a Well-Drafted Purchase Agreement Matters
Whether you’re buying or selling, a well-drafted purchase agreement does more than list accurate details—it lays out the complete roadmap for a smooth transaction. It should clearly define the rights and obligations of both parties, provide a step-by-step guide from signing to closing and beyond, and include precise timelines and conditions for key milestones. Below are some of the most important considerations:
Promises and Guarantees (Representations and Warranties)
Representations and warranties by the parties help allocate risk. Buyers typically warrant and represent that they have the authority to enter into the agreement. Sellers often make more assurances about their ownership of the property and right to sell the property, the property’s condition, and the accuracy of the information provided. Sellers usually prefer to limit these representations and warranties, while buyers want broader assurances that extend beyond closing. Without explicit representations and warranties , parties may have limited recourse if unexpected issues arise.
Protecting Both Parties with Contingencies
Contingencies are conditions that must be met before the transaction can move forward. The most common contingency in commercial real estate is the inspection or due diligence period, where the buyer evaluates the property to ensure it suits buyer’s needs. Other contingencies might include securing financing, obtaining necessary permits, or verifying environmental conditions. Every contingency should have a clear deadline. If the benefiting party is ready to move forward, it can waive the contingency and proceed to closing. If a deal falls through for a reason not listed as a contingency, the party responsible may be in breach of contract.
Title Matters: Ensuring Clear Ownership
A title search and commitment from a title company help identify any issues affecting ownership. A strong agreement should cover who pays for title insurance, how and when the buyer can object to title issues, and the seller’s responsibility to resolve any problems before closing. Title clarity is crucial—overlooking this can cause costly delays or legal disputes after closing.
Prorations and Financial Adjustments
Because real estate transactions don’t always align with billing cycles, agreements must outline how financial responsibilities will be divided. Some expenses, like prepaid taxes and utilities, may benefit the buyer after closing, requiring reimbursement to the seller. Other costs, such as accrued property taxes or service fees, may come due after closing, meaning the seller needs to credit the buyer. Tenant rents and security deposits must also be appropriately accounted for to avoid last-minute disputes. These financial details are easy to overlook but can cause significant roadblocks if not addressed upfront.
Additional Closing Documents
At closing, several additional documents will be signed, such as the deed transferring ownership, an assignment of leases if the property has tenants, and a bill of sale for any personal property included in the transaction. While not always required in advance, agreeing on the format of these documents before closing reduces the risk of last-minute disagreements.
Laying the Groundwork for a Successful Transaction
In commercial real estate, the strength of a transaction starts with its foundation. A well-structured purchase agreement helps all parties understand their rights and obligations and the path to a successful closing. By addressing key components such as representations and warranties, contingencies, title considerations, and financial adjustments, buyers and sellers can avoid unnecessary disputes and build a solid framework for their investment.
A well-structured purchase agreement doesn’t just close the deal—it protects your sale or investment for years to come. CPM is here to help you draft, review, and negotiate agreements that lay the groundwork for a smooth and successful transaction. Contact your CPM attorney today to ensure your agreement supports your long-term goals.
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