Contingencies are common in CRE contracts

| Apr 15, 2021 | Commercial Real Estate |

New Jersey residents already familiar with commercial real estate transactions know the importance of understanding contingencies. Contingency clauses allow parties to a real estate deal the option of backing out if certain conditions exist. Some real estate experts feel parties to a real estate deal should not sign a contract that does not include needed contingencies.

Common commercial real estate contingencies

The ability of a buyer to access funding is a critical component of any real estate deal. The simple truth is that no transaction can happen if expected funding sources do not come through for the buyer. Both parties should possess the right to void a real estate contract if the buyer’s funding falls through.

Title problems are another issue that can quickly stall a real estate transaction. Several factors can result in the title situation becoming murky for a commercial property. Potential conflicts include public record errors, missing heirs, unknown liens, and other issues. A title contingency will protect both buyers and sellers from unexpected title issues.

Surveying the property will provide buyers with details regarding their proposed acquisition. The size and location of the property represent issues discussed before it is time to sign a contract, but a survey will confirm this information. Other information revealed through surveys might include the availability of utilities, access to public roads, and identifying any easement that may affect how a buyer can use the property.

Survey contingencies should specify which party will pay for the survey. The clause should also say how much time a seller will have to address fixable problems uncovered by a survey.

A thorough inspection of a property will provide a detailed account of its physical condition. Most inspections do not uncover serious issues, but there are times when property inspections reveal a problem for a buyer. Including an inspection contingency in a commercial real estate contract allows buyers to void a deal if an inspection uncovers a problem they cannot handle.

Buying and selling real estate represents a complex transaction for parties on both sides of the table. It may help to consult an attorney before becoming involved with real estate negotiations.