Contingencies are a standard part of any valid contract, and ones involving commercial real estate transactions are no different. They address concerns over unnecessary risks and provide peace of mind if the buyer or seller spots a red flag that is either a deal-breaker or a red flag that needs addressing before moving the deal forward. Considering the amount of money involved in typical commercial real estate deals, contingencies may be the difference between good deals and bad ones.
Common contingencies that mitigate risk
No commercial real estate transaction is risk-free, but many often include these contingencies:
- Title: Problems with the title can sink any deal. Examples include unknown liens, easements, or missing heirs with ownership interest.
- Financing: It is unusual not to use financing to buy commercial property. This clause enables buyers or sellers to step back if the financing falls through or does not go as planned. The cause could be bank policy or local, state or federal regulation changes.
- Inspections: Bringing in trained inspectors is part of due diligence. They can find structural concerns, recognize signs of past flooding or other red flags that require further negotiation to resolve or provide grounds for walking away from the table.
- Survey: There are countless reasons to do a survey, and it should be a part of every transaction, including registering the new owner with the county clerk, securing a loan and verifying the exact property lines. Surveys can identify problems with the property or its borders. It can also verify infrastructure (utilities, road access, etc.) for land development.
Every real estate deal is different
The details and contingencies of a real estate contract should reflect the terms of the deal and the interests of the buyer and seller. While a real estate attorney can draft the agreement, they also may have to negotiate or litigate the contract conditions when disputes arise.