Common Commercial Real Estate Contract Contingencies

Just like residential real estate contracts, Dallas commercial real estate contracts have their share of contingencies. In short, contingencies are found in most real estate contracts and are essentially escape clauses for both the buyer and the seller.

Each party wants to make sure they are protected in the real estate contract, so real estate contingencies are a common occurrence. They often make the contract much easier to handle for both the buyer and the seller, as it provides them with an opportunity to back out of the contract for a number of reasons.

Although both residential and Dallas commercial real estate contracts both have contingencies, the contingencies themselves are quite a bit different. The following list details some of the common contingencies found in Dallas commercial real estate contracts:

When purchasing a parcel of land for Dallas commercial real estate, the contract may be subject to the approval of the buyers attorney. Because Dallas commercial real estate contracts may be decidedly more in depth than residential real estate contracts, waiting on the approval of your attorney when buying Dallas commercial real estate is quite common. It is also common to have a contingency that is based on a business professionals partner or investor, as it is important to get approval from everyone involved before the contract is finalized.

Many commercial real estate contracts include contingencies that are based on financing approval for the buyer. For tracts of land, this contingency may include approval of a legal survey, if one has not already been done. In addition, a buyer will likely want to include in the purchase agreement some language about obtaining necessary permits and zoning for the commercial property.

When speaking of commercial tracts of land, there may be a contingency with verbiage regarding liens on the property. In particular, the purchase of the land will be contingent on no environmental cleanup liens.

It is common to have a contingency based on: the buyer achieving a loan of at least 75 percent of the purchase price of the Dallas commercial real estate property; the buyer being satisfied with the inspectors report; and the buyer being satisfied that the property can be remodeled or renovated to his or her satisfaction. In other words, the buyer will likely include a series of contingencies based on the use of the commercial property and how it can and cannot be used.

The use of a realtor qualified in commercial real estate is crucial, as he or she will be able to guide you when making a commercial real estate transaction. Real estate companies, like VIP Realty, have a plethora of highly qualified and experienced realtors who have extensive experience in dealing with commercial real estate contracts. It is important to never enter into any type of real estate purchase agreement, whether residential or commercial, without advice from a trusted realtor and real estate attorney, as they will be able to best protect your interest in the real estate transaction.

Commercial Real Estate Contract Terms

Commercial real estate contract language or terminology is different in many ways from what you may be used to seeing in a residential deal. Listed below are a few of these terms. You should become familiar with these terms, what they mean, and how and why they are used in a commercial real estate contract.

 

Representations and Warranties
In a residential closing, everyone buys homeowner’s insurance because the Seller’s representations and warranties expire at the closing, unless you insist that they don’t. These are the property facts to which the Seller alleges in the sale, such as a solid roof or that no illegal action, including legal cases, are threatening against the property. Always include a representations and warranties clause in your contract that the Seller must live up to even after closing.

Although most commercial sellers won’t warrant the roof, sometimes they’ll warrant the structure.

For instance, they might say that although there are cracks in a certain wall, they had testing done. They would give you a copy of that test, and agree to stand behind the safety of the wall. Any warranty that the Seller makes to you should survive the closing.
 

Commercial Closings
The closing, like the inspection period, is based on a formula. It starts at the end of the inspection period, so it’s like a moving window.
 

Brokerages
Your contract must contain language regarding any brokerages involved.

If this inclusion is not applicable, each of you wants to hold the other side harmless. This protects both Buyer and Seller if a finder’s fee suddenly appears or a broker shows up at the closing, making unexpected claims.

If any brokers are involved in the deal, the contract should list each broker’s name and indicate the manner of payment. Often, they may be paid based on a separate agreement between Seller and Broker.

Key Point: Many people write contracts for themselves with no broker language. Even if the broker clause is not applicable, include the broker language in your contract.
 

Assigning a Contract
Many contracts will either not have any assigning ability checked or include no assigning ability at all. If there’s a specific paragraph that says the Buyer may assign the contract, the Buyer may freely assign it. However, if the signed contract has no assignment clause, then it is assignable. You don’t have to include an assignment clause. Tip: To be safe, always include the assignment clause and specify whether it can be assigned.

 

These were a few extra commercial real estate contract terms, I felt were important to list in addition to the list I provided in another article posted earlier. If you like what you read or learned here, be sure to review the other article for a continuation of sorts about commercial real estate contract language and how to use it or interpret these items as you move into the commercial realm of investing.