Commercial Purchase Agreement 101

A commercial purchase agreement is a document used in the sale and purchase of commercial properties. If you are interested in buying or selling commercial real estate, your negotiations will take place in the commercial purchase contract. To ensure that you have the best protections in your commercial transaction, it is important to understand the benefit of using a commercial purchase agreement and how Rochford Law can assist you in navigating and negotiating the best deal. Here is a crash course into the use of a commercial purchase agreement. 

Understanding the Commercial Purchase Agreement

A commercial purchase agreement is a legally binding contract between the seller and the buyer of commercial real estate. It outlines the responsibilities of both parties, the payment terms, and the sale conditions either party should meet before ownership transfer. The way the document is written majorly depends on negotiation terms.

Why Use a Commercial Purchase Agreement

A commercial purchase agreement outlines the terms that the buyer and seller agree to, and defines how the transaction will flow, who pays for what, and outlines “what-if scenarios”. For example, if there are inspection, financing, or appraisal contingencies, the purchase agreement will outline how those contingencies flow, the rights of both parties, and what is to occur for the contingencies to be satisfied.. 

The commercial purchase agreement is also a protective tool in the event that the property transaction has instances of default. If the buyer or seller does not fulfill their obligations, the purchase agreement will outline what is to occur in these situations. This is why it is extremely important to seek out an attorney who can assist in drafting the commercial purchase agreement to look out for your best interests. Apart from the legal protection, the commercial purchase agreement also provides transparency and a timeline for the obligations of the buyer and seller in the transaction. Having a detailed and concise written agreement will keep all parties accountable and bound to a timeline. 

Pitfalls and Consequences

Commercial purchase agreements sometimes get complicated, especially if you are unfamiliar with the clauses or how they may affect you. Here are four common phrases that often confuse sellers and buyers.

Tax Prorations

The main reason most people don't get it right is because every town has different tax millages. They cover different taxing periods, some paid at the beginning and others at the end of the period. That said, tax proration is done as if covering the current year. For instance, the winter tax bill, usually in December, is often paid in the following year, from January to February, but covers the former year.

Default Penalties

In case of a default, the buyer escrows the deposit in good faith. Some agreements limit the buyer's deposit amount. Others give the seller the right to force the buyer into purchase. If the seller defaults but writes their close to allow contract termination, the buyer may lose all their investment on due diligence.

Contingencies 

These include financials, environmental, title, survey, financing, and inspections. The buyer should do due diligence to ensure the good or property meets contingencies.

Due Diligence Cost

Since the agreement is a contract, the terms are negotiable until signed. The negotiations often include who to pay for closing costs, the surveys, and the environmental assessments. However, the sellers have a bigger pie in the current market, meaning buyer's cover most expenses.

There are numerous concerns, such as price allocation, title insurance, and type of deed. While it's difficult to anticipate all issues, the terms are negotiable, and working with experts ensures you reap the benefits of the commercial purchase agreement.

Get Expert Help with Your Commercial Purchase Agreement

Navigating a commercial purchase agreement can be complex, and seeking expert legal advice can help ensure a smooth and successful transaction. Rochford Law's experienced lawyers provide valuable guidance and support for buyers and sellers in real estate transactions, from due diligence to closing. Contact us today to schedule a free consultation.