The bedrock of any transaction is a contract. It’s the document that defines the deal, dictating its fundamental parts, like identifying the parties, price, and property being sold.
Quality purchase and sale agreements can set the parties up for successful and smooth transactions. Poorly written agreements or those that don’t fit the situation, on the other hand, can do more harm than good.
In this article, we will walk you through what you need to know about purchase and sale agreements.
At Bolan Law Group., we know how important it is to have the right contracts in place. For over 45 years, we have helped clients throughout the greater Puget area in Washington State successfully close business and real estate transactions.
What Are Purchase and Sale Agreements?
A purchase and sale agreement is a contract between you and someone else. Such a contract involves one party buying and another party selling something. You may encounter agreements for purchase and sale in various circumstances, such as buying and selling residential and commercial real estate or as part of a merger and acquisition.
When Is a Purchase and Sale Agreement Enforceable?
Just because you and another person talk about entering into a purchase and sale agreement doesn’t mean it’s enforceable quite yet. Many factors determine when a purchase and sale agreement is enforceable.
For example, if the purchase and sale agreement is to sell property, Washington law typically requires it to be in writing to be enforceable. The writing typically needs to detail the price, parties, and property. If one of these crucial details is absent, the purchase and sale agreement could be invalid, even if it’s signed.
If someone signs a purchase and sale agreement under duress or fraud occurs, then the contract isn’t enforceable.
What Do Purchase Agreements Cover?
The details of a purchase and sale agreement vary depending on the subject matter of the contract and the wishes of the parties. Residential real estate purchase agreements contain different terms than complex purchase and sale agreements that occur as part of a merger.
But there are common terms in each. Let’s go over some of those now.
One of the first lines of many contracts gives the names of the interested parties. It may go without saying, but knowing the identity of the parties who are making a legal agreement is incredibly important. This comes into play when it’s time to fork over the cash or hand off the keys. But it also plays a role in other crucial ways.
For example, let’s say that Sarah agrees to sell her house and Bob agrees to buy it. They sign the purchase and sale agreement. Later, Sarah’s attorney reviews the property’s ownership documents (called the chain of title) and discovers that Sarah’s husband’s name is also on the property. However, only Sarah signed the contract. Because Sarah doesn’t own the home in her name alone, her attorney will need to help her take additional steps to validate the sale.
Every purchase and sale agreement will discuss the price the buyer agrees to pay for the property. If you haven’t already, you and the other party will engage in negotiations to determine a reasonable price for what’s being sold. Once you land on a final price that everyone agrees to, that’s what you put into the contract that you sign.
Because many versions of the contract may be floating around during negotiations, make sure you read the document extremely carefully before you sign anything. If you inadvertently sign an outdated version that contains a higher price than what you’re willing to pay or receive, issues arise.
In some cases, you may notice this early on, and everyone might agree to void that version and sign an updated one. But if you don’t see this until later or the other party resists signing a new version, this complicates things. You could be forced to go through with the transaction at the elevated price in the signed contract, lose out on the deal entirely, or face other repercussions.
The contract also indicates the property or assets that are being sold. Just like with names and prices, it’s very important that the property description is specific and accurate.
For real estate transactions, double-check the address and things like whether a parking space is included to make sure that everyone is on the same page. The agreement must also contain the full legal description of the property. If the property address or legal description is incorrect on the contract, this can delay the transaction. The title company usually requires that the contract have the correct property address and legal description before they agree to issue the title insurance policy. If the address or legal description is incorrect in the agreement, then you may have to fix this before the transaction can proceed.
For complex business transactions, it’s equally as important to draft this portion carefully. If the contract doesn’t accurately describe what is being sold, it can cause a host of issues. Unintended repercussions could include shareholder lawsuits and even the triggering of reporting requirements.
The Purchase Date
The purchase or closing date also needs to be in the purchase and sale agreement. It’s not uncommon for this date to be extended to allow time for things like financing and other contingencies. But you need to always have a closing date on the books.
Purchase and sale agreements contain a host of promises. Promises include:
- Agreements to do or not do something—For example, the buyer agrees to pay a certain amount of money to purchase the property, and both parties agree to act in good faith to carry out the contract.
- Guarantees about the property—For example, the seller promises that they own the property and that there’s nothing seriously wrong with it.
- Promises about what happens during the transaction—For example, these promises typically include important deadlines for inspections, title insurance, financing, and disclosures.
At its core, every contract is a promise between you and at least one other person. But the specific details change depending on what you and the other party agree to and the purpose of the contract.
Bolan Law Group.—Experienced Attorneys
Protect yourself by having an attorney draft a well-written purchase and sale agreement before you agree to a sale. As we discussed, once you sign the contract, it’s most likely enforceable, and there are limits to when and how you can back out of the contract. Reneging on your promise to follow the agreement may cause you to forfeit your deposit or face other legal consequences.
Our team has decades of experience drafting and defending purchase and sale agreements. Clients consistently praise us for our “spectacular” job assisting them with their legal matters and our attention to detail. We always strive to handle our client’s transactional legal matters efficiently and effectively. Contact our office today.