Managing Partner Robert M. Steeg is a regular contributing columnist on real estate for Reuters Legal News and Westlaw Today. His article, “Provisions to protect the buyer in a purchase agreement,” was published on February 22, 2024. Following is an excerpt, which you can continue reading on Reuters Legal News and Westlaw Today.

Provisions to Protect the Buyer in a Purchase Agreement

In a transaction for the purchase of commercial real estate, the written purchase agreement is the governing document. This article will suggest some provisions that will specifically protect and promote the interests of the buyer in that contract, including assessing the condition of the property, due diligence, closing, and default.

Assessing the condition of the property

First, the buyer needs to gather as much information about the property as possible, early in the purchase process. The purchase agreement should contain a provision whereby the seller is required, within a relatively short period of time after contract execution (such as five business days), to provide the buyer with full and complete copies of various documents pertaining to the condition of the property.

These documents should be specifically enumerated, and should include:

  • most recent survey;
  • most recent title insurance policy;
  • environmental, soil, property condition, third-party injury, and zoning reports;
  • filings with any liability insurance company concerning them, for the last three years;
    documents concerning casualty claims made within the last three years to any property/casualty insurer;
  • complete and accurate copies of all leases, including any amendments or letter agreements or other lease-related documents;
  • notices received from any governmental official.

Due diligence

The process of “due diligence,” by which the buyer reviews and examines the property to determine its suitability for the buyer’s purposes, is critical. With respect to the due diligence process, there are several provisions the buyer should attempt to include in the purchase agreement.
The first provision to include is the broadest possible description of the types of examinations that the buyer is permitted to conduct. Include language such as “any and all investigations, examinations, and tests that the buyer deems necessary.” Make sure to include the ability to conduct soil studies and Phase I and Phase II environmental assessments.

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Filed under: Commercial Real Estate, Industry News, Purchase and Sale
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