Contingencies are a standard part of nearly every valid contract, including commercial real estate agreements. The reasons are pretty simple – they can address unnecessary risks and provide peace of mind to both sellers and buyers. When millions are on the line, contingencies can be the difference between bad deals and good ones.
Often-used contingencies that work
No deal is risk-free, but real estate attorneys drafting agreements often mitigate or minimize risk by employing the following conditions:
Title: Unknown liens, unknown easements, missing heirs, or another problem with the title can sink any deal at any time. Title contingencies enable buyers to walk away from negotiations or renegotiate a more fair deal if there is trouble with the title.
Financing: It is rare for a commercial real estate deal not to have some financing. This clause lets buyers or sellers step back if the financing falls through. The reasons could be beyond the control of the two parties and may even be due to changes at the bank or policy changes at the local, state or federal level.
Inspection: Part of a buyer’s due diligence, a formal inspection by experts can identify structural issues, flooding risks or other red flags. It may be cause for renegotiating the price or requiring work done before taking ownership. Of course, it can be grounds for killing the deal.
Survey: Every real estate transaction in Texas requires the seller to submit a new or pre-existing survey, and the bank may also require it. They are also helpful in determining if sufficient infrastructure (utilities, access to roads, etc.) is in place.
Every property and deal is different
The terms of each contract should reflect the details of the transaction and the interests of those involved. An attorney who handles commercial real estate agreements can add other necessary contingencies to help ensure that the deal is fair and equitable.