The Purchase and Sale Agreement
When an attorney drafts a purchase and sale agreement, the substantive provisions (e.g., the purchase price, closing date, etc.) have been previously agreed to by the principals. Often, the buyer and seller then retain attorneys to “just draft the deal” and “simply get it done.” But if it were as simple as filling in the purchase price and closing date, the standard purchase and sale agreement would be one page instead of twenty, and an attorney would not be needed in the first place.
In addition to the tax ramifications, the purchase and sale agreement contains dozens of provisions each requiring careful consideration. Many of these provisions are what client’s refer to as “boiler plate” (which they are not). For example, (1) what happens if one side wants to terminate the sale, and (2) what happens if the sale closes, but problems arise post-closing. In both instances, the interests of the buyer and the seller are divergent and the role of the attorney is to achieve a balance that favors his or her client.
Termination of the Sale. When the seller accepts an offer from the buyer, it creates powerful leverage in favor of the buyer. Why? Because the buyer has the legal right and ability to tie up the property for weeks, even months while it conducts its due diligence and arranges for
financing. The counter leverage the seller has is the deposit. Here, the goal of the attorney is twofold. One, the attorney must clearly identify when and under what circumstances the buyer will forfeit its deposit should the sale be terminated. Two, the attorney must negotiate the deal in such a manner which maximizes the client’s leverage. If representing the seller, this would mean making the deposit “hard” in as short a time period as possible with as few as possible exceptions. If representing the buyer, this means delaying the time before the deposit goes “hard,” or including exceptions that would allow the buyer to retain some or all of the deposit if the sale does not close.
Post-Sale Problems. Notwithstanding the buyer’s due diligence, problems may arise after the sale closes. These problems range from fraudulently concealed facts to simple “buyer’s remorse” that an investment is not yielding the anticipated return. Here to, the goals of the buyer and seller are at odds. The seller wants to rid itself of future liability and the buyer wants
recourse for its damages. Given the price of real property, these liabilities and damages can be millions of dollars.
While the seller can never absolve itself of liability for fraud, there are generally two ways of dealing with this issue. The seller’s attorney should freely disclose all material facts and documents concerning the property, give the buyer ample opportunity to conduct its own due diligence, and then have the seller represent and warrant that it is relying solely on its own
investigation. The buyer’s attorney wants the material facts and documents, but wants to limit any representations and warranties it gives, and further wants the seller to make substantive representations and warranties of its own. We are able to identify these issues and apply leverage to achieve a solution that benefits our client’s position.
In addition to the tax ramifications, the purchase and sale agreement contains dozens of provisions each requiring careful consideration. Many of these provisions are what client’s refer to as “boiler plate” (which they are not). For example, (1) what happens if one side wants to terminate the sale, and (2) what happens if the sale closes, but problems arise post-closing. In both instances, the interests of the buyer and the seller are divergent and the role of the attorney is to achieve a balance that favors his or her client.
Termination of the Sale. When the seller accepts an offer from the buyer, it creates powerful leverage in favor of the buyer. Why? Because the buyer has the legal right and ability to tie up the property for weeks, even months while it conducts its due diligence and arranges for
financing. The counter leverage the seller has is the deposit. Here, the goal of the attorney is twofold. One, the attorney must clearly identify when and under what circumstances the buyer will forfeit its deposit should the sale be terminated. Two, the attorney must negotiate the deal in such a manner which maximizes the client’s leverage. If representing the seller, this would mean making the deposit “hard” in as short a time period as possible with as few as possible exceptions. If representing the buyer, this means delaying the time before the deposit goes “hard,” or including exceptions that would allow the buyer to retain some or all of the deposit if the sale does not close.
Post-Sale Problems. Notwithstanding the buyer’s due diligence, problems may arise after the sale closes. These problems range from fraudulently concealed facts to simple “buyer’s remorse” that an investment is not yielding the anticipated return. Here to, the goals of the buyer and seller are at odds. The seller wants to rid itself of future liability and the buyer wants
recourse for its damages. Given the price of real property, these liabilities and damages can be millions of dollars.
While the seller can never absolve itself of liability for fraud, there are generally two ways of dealing with this issue. The seller’s attorney should freely disclose all material facts and documents concerning the property, give the buyer ample opportunity to conduct its own due diligence, and then have the seller represent and warrant that it is relying solely on its own
investigation. The buyer’s attorney wants the material facts and documents, but wants to limit any representations and warranties it gives, and further wants the seller to make substantive representations and warranties of its own. We are able to identify these issues and apply leverage to achieve a solution that benefits our client’s position.