Purchase Agreement - Seller Considerations

Commercial Real Estate Toolkit

Purchase Agreement – Seller Considerations

After a seller has found a buyer willing to purchase its commercial real estate property on terms the seller is willing to accept, the next step is drafting and negotiating a purchase and sale agreement. Below are some considerations a seller should prioritize.

Time kills deals. A seller should focus on getting the buyer under contract as soon as possible and negotiate all time periods to be as short as possible. While the property is under contract, tenants can go out of business, governmental authorities can take adverse actions, and loan terms can change dramatically. As a seller, you want the buyer to have non-refundable earnest money as soon as possible.    

A seller should be cognizant of managing pre-closing risk. The agreement should contain provisions that require the buyer (and its consultants) to obtain commercial general liability insurance prior to coming on the property to perform inspections. In addition, the agreement should require the buyer to indemnify the seller for personal injuries and property damage that may occur during the inspections and to repair any damage resulting from the inspections.     

A seller should avoid making any misrepresentations. Most agreements contain representations and warranties and a seller should carefully review this section. If any of them are untrue, it gives the buyer an opportunity to terminate the contract or worse, a right to sue the seller after the closing and seek monetary damages. The agreement should include strong “as-is” language and make clear the buyer has no right to rely on any statements made by the seller or its agents, unless that statement is written into the agreement itself. A seller can further reduce risk by adding limitations of liability for post-closing claims and prohibiting the buyer from filing suit against the seller for breaches of the representations and warranties discovered by the buyer prior to closing.

A seller should avoid agreeing to that which they cannot control. Although a seller should eliminate any contractual provisions that require the action of a third party who the seller does not control, sometimes they are unavoidable. In such cases, the agreement should clearly state that the failure of the third party to act in the manner required by the contract is not a default by the seller.      

A seller should attach the form of the primary closing documents to the agreement as exhibits.  This small amount of effort upfront avoids disputes at the last minute during the stressful period of time leading up to the closing. It also gives the seller an opportunity to include clauses that incorporate any negotiated liability limitations.

Keep in mind that there is no such thing as a “standard form”. These are just a few of many concepts a seller should prioritize. For this reason, the agreement should be drafted and negotiated on your behalf by an experienced commercial real estate attorney.