IF THE FORM DOES NOT FIT, YOU MUST ALTER IT- #1 (Watch Your Language with "Off the Rack" Purchase and Sale Agreements)

The purchase/sale agreement is probably the most misunderstood, but most important document utilized in a real estate transaction. Some of the unwary mistakenly refer to the agreement as merely an offer, not understanding that if signed by (accepted by) the seller, it becomes a binding contract. Others, usually to justify not obtaining legal advice, fool themselves into believing that they only signed a standard form with unenforceable “boilerplate” (one-sided, protective) language. Whether the agreement is contained on a “standard,” printed form, is replete with boilerplate, or is entitled “offer to buy real estate and acceptance,” once signed by both parties, it will be held to be a binding, enforceable agreement to purchase/sell real estate with rights and obligations of the parties arising thereto (absent contract law-type defenses – i.e. no offer, acceptance, consideration; illegal; contrary to public policy).

It is true that title to a property cannot transfer without a deed and a closing. The closing however, merely carries out the provisions of the agreement. The agreement is of paramount importance as it defines the interest to be conveyed by deed, and determines the rights of the parties.

There are many different types of purchase/sale agreement forms is use. Real estate broker or legal stationary company “standard” forms are used in most residential and simple commercial deals. The inherent problem is that there is little that is standard about a real estate transaction. Every purchase/sale is unique since there are different types of property, different buyers and sellers (with different levels of motivation and sophistication) and different potential liability in each transaction. This author, however, is not advocating abolishment of standard forms. Obviously, the attorney looking to change custom, and prepare ten page contracts for small, “brokered” single family house deals will not generate a lot of business.

The real estate attorney’s optimal role can be analogized to that of a clothing store tailor. If the off the rack suit (contract form) does not fit, you must alter it. Inapplicable clauses can be crossed out and initialed by the parties on the form. Small insertions can be written in and initialed, and large insertions can be added by way of addendum.

One clause we rarely see in residential form contracts is the “Drop Dead Date” clause. The danger in not putting a deadline for both parties to sign (“Drop Dead Date”) is that the contract is not over until it’s over. For example, let’s say the buyer signs a purchase agreement for House #1 and sends it to the seller for signing. The seller takes two weeks to decide if it wants to accept the deal, and then signs the contract. If the buyer signs an agreement to buy House #2, one week after the buyer signed the contract for House #1, (figuring the seller of House #1’s silence meant it was not going to accept buyer’s low offer), the buyer must buy House #1, as well as House #2. The buyer can always send a notice to a seller, that it is terminating its offer (provided the notice is received by seller, prior to seller signing/accepting buyer’s offer), but buyers often forget to do that. An automatic Drop Dead Date clause, declaring the agreement void if not signed by seller within a week of buyer’s signing, would easily have prevented the problem exemplified above.

In commercial transactions, standard forms can rarely be relied upon, since the commercial transaction usually involves more dollars and more complexities. The problem we see most often with commercial contracts, is the over reliance on originally drafted forms for previous, “similar” deals, that are in reality, different in some way. For example, if the contract for seller’s “new deal” does not contain the clause: “subject to rights of tenants in possession”, because there were no tenants in seller’s previous, “similar deal”, the Seller would be in default, unless its Tenant voluntarily leaves the property before closing. This situation is more of a problem when a developer buys a property and wants to develop it for a new use, free from existing tenants.

Please note that brokers crossing out contract provisions and drafting new language may be crossing the line into the “unauthorized practice of law.” Contract modification is best effected with advice of counsel.

Finally, it is important to remind buyers and sellers to consult an attorney before the purchase agreement is signed. The disgruntled suit buyer can insist that the seller re-alter or accept the return of an ill-fitted suit. The disgruntled property buyer (or seller) however, has no legal grounds to insist that the other party accept changes to the contract after it is signed.

AUTHOR”S NOTE: In the “Watch Your Language” section of our Blog, we plan to:

1) Discuss, in general, language issues with various real estate forms and documents (The “If the form does not fit, you must alter it” Series). For example, this week we discussed the need to alter “standard” Purchase and Sale Agreement forms so they are tailor made for each unique real estate transaction.

2) Illustrate how specific wording and grammar (even placement of a comma) can change the meaning of a document, contrary to what one party intended, often with costly results (The “Say what you mean, precisely, or a judge will decide what you meant” Series).

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