Buying Commercial Real Estate: What Goes in the Contract

When buying commercial real estate there are certain matters that should be addressed as a minimum. Commercial real estate can include residential, office, industrial or agricultural property, and it’s the use of the property for the purpose of generating income that gives it commercial status. The actual details included in the purchase contract will depend on the structuring of the sale and the condition of the property, but some issues are considered to be basic.

Basic Issues to Address in the Contract

A commercial contract should begin with a detailed description of the property being sold. The description needs to be exact and include the land and buildings and any other relevant structures or equipment. The description is normally followed by the financial details of the transaction which includes the purchase price and earnest money, and a description of the payment terms. The contract also includes a proration schedule for taxes, utilities and other expenses when the ownership transfer does not occur on the first day of the month.

The contract must address the condition of the title. A title search will be completed and the title insurance included as a contract attachment. If there are any covenants or liens against the property you want to know. The contract will state whether a building inspection is required. It will describe required inspections of property components like elevators, HVAC units, sewer systems and others that must be completed before the sale can go through, and it will also describe who is responsible for correcting code violations. The seller warranties and seller closing obligations are also included in the contract.

Other Provisions

An attorney can offer legal advice as to other provisions to include. For example the contract may define seller repairs that must be made before closing. The attorney often advises property buyers to require seller representation concerning income and expense figures provided in financial statements. Another important provision describes how the contract will be enforced in the event of a buyer or seller default.

Terms of Sale Closing

Before a property sale will close it is necessary for contingencies, as described in the contract, to be met. For example, a common contingency is an agreement that the sale will be completed only if the buyer can obtain a mortgage. The contract will include the purchaser’s closing obligations, the date of closing, and the date the buyer can take possession of the property.

It is important to seek the advice of a qualified attorney because of the complexity of commercial contract law.