As with residential real estate contracts, commercial real estate contracts often need contingencies to avoid unnecessary risk. Adding a few carefully crafted contingency plans are safety measures that can be helpful or provide peace of mind to buyers and sellers and perhaps be the difference between catastrophe and triumph. While no deal is risk-free, an attorney who handles commercial real estate agreements and litigation can help clients draft an agreement to avoid as much risk as possible.
Common contingencies
These are four of the more popular contingencies:
Financing: Few deals go through without financing of one sort or another. Delays can be beyond the control of the potential buyer, perhaps because of changes at the bank or local, state or federal policies. It could also be as simple as the buyer not getting financing or a reasonable rate for the loan. So, a contingency plan enables either side to pull out if the financing falls apart.
Title: Title issues like unknown liens, unknown easements, missing heirs, or other discrepancies can sink any real estate transaction. This enables the buyer to object to title conditions they do not like. Titles also indicate who owns a piece of property, deed restrictions, liens, and easements, which may raise an issue.
Survey: Getting a survey done can determine if there are sufficient utilities or access to public roads. It can help locate an easement and assess its impact. It can also clarify the actual size of the lot and its boundaries.
Inspection: A formal inspection can identify some potential red flags that need immediate repair, or it could be a point of negotiation on price. It can also identify something that is a dealbreaker.
Other contingency possible
The terms of each deal will be a little different, particularly when it involves commercial real estate. The parties involved in the transaction or their attorney can add other contingencies as needed—those with questions or concerns can talk to an attorney who handles commercial real estate deals.