Purchase and Sale Agreement, What Does It Mean?
A Purchase and Sale Agreement is a written contract between the purchaser (buyer) and vendor (seller) for purchase and sale of a particular property. This agreement covers the specified cost of the property, provided that a number of conditions and terms – often laid out by the purchaser – are met.
Generally speaking, the agreement covers the essentials of the interactions, buyer and seller and the property itself. It will include basic information on both parties involved in the deal. It will also contain information on the fixtures included on the property if any. Finally, it will contain any and all important dates regarding the actual purchase and sale. This includes requisition, closing arrangement and completion dates. This agreement needs to be written and signed in order to be deemed legally valid. If any of the conditions are not meant, the agreement can fail.
This process begins when an offer is made by a potential buyer. This offer remains irrevocable for a certain amount of time. The amount of time is usually made clear in a clause that is written into the agreement.
An idea of conditions and clauses
There are many conditions that can be agreed upon when drafting up a Purchase and Sale Agreement. Here are a few:
That the buyer’s considered the offer is fully conditional on the property being legally owned and registered by the seller.
If a problem is found by the buyer’s lawyer during document searches, they must send a letter to the seller’s lawyer before the requisition date. If the issue cannot be fixed, then the entire agreement can come to a halt. Unless of course, the buyer chooses to acquire the property with a particular defect.
The seller must provide a survey of the property, and in the commercial real estate, an environmental report may need to be provided.
If these conditions are not met, then the agreement can come to an end. These conditions are only some in a long list that can, and should, be included in a Purchase and Sale Agreement.
On top of the conditions being laid out in the agreement, there are also additional clauses that can be included. These clauses cover more technical and in-depth situations. It can include the future use of the property, the production of documents, insurance, adjustments and many more factors.
Keep in mind that these examples only scratch the surface in terms of the depth of a Purchase and Sale Agreement. Always seek legal advice if there is a part of the agreement you do not understand, especially before finalization.
How and why the agreement often fails?
There are many reasons for a Purchase and Sale Agreement can fail, but there are things to remember as both a purchaser and vendor. An important factor regards the deposit for the specified property. If the seller of the property does not close the deal, they are not entitled to the buyer’s deposit. There is no direct entitlement to the deposit for the property. Furthermore, there are potential damages that go are considered in the event where the transaction fails as well.
For purchasers, specifically in commercial leasing, specific performance is in place to ensure that they are protected. Specific performance is a court order to enforce the leasing party to execute their end of a contract. With such an agreement, there are special circumstances that surround specific performance. These circumstances ensure the purchaser is granted special relief if the vendor is to back out.
Legal matters can also be grounds for the agreement to fail. Legal grounds to not close on the agreement can include misrepresentation of the property. This can include prior land use, future land use or what is included with the sale of the property. Also, as mentioned before, the agreement can come to an end if the vendor fails to satisfy any of the agreed-upon terms or conditions. Finally, another example of legal grounds weighing on the sale is if the results of an environmental report are not disclosed prior to sale. The results of such a report can weigh heavily on the sale of a property as it covers any past pollutants and land uses.
These are just a few of the reasons how a Purchase and Sale Agreement can halt, but it also shows how and why many come to an end. Both parties seek to have their best interests kept in mind, and when that doesn’t happen it can cause rifts in the agreement and eventually cause it to fail.
Things to keep in mind About Purchase And Sale Agreement
A Purchase and Sale Agreement may seem straight-forward, but the confusion comes when layer after layer of legal matters are added to it. With a seemingly endless list of conditions and clauses that need to be considered and reviewed, it can become complicated quickly.
Fortunately, to aid in this confusion, there are many resources available to you as both the purchaser and vendor of a property. A prime resource being Ontario’s Real Estate Association (OREA). The OREA has templates and information on the agreement as a whole. This can help both the buyer and vendor understand the multitude of aspects that go into a Purchase and Sale Agreement.
Hummingbird Lawyers can sit down with you before you finalize the transaction and ensure that it well represents your interests. However, our civil litigation lawyers can also stand up for you if it fails. Contact Hummingbird Lawyers today if your Purchase and Sale Agreement has recently fallen through.