Real estate contracts establish the financial obligations of each party, describe the property to be transferred, dictate the timing of the transaction and outline other key terms of the deal. Most importantly, contracts provide legal recourse should one party fail to uphold its part of the bargain. As a result, it is important to carefully draft and negotiate all real estate contracts.
Contract law largely governs real estate agreements. Under New Jersey’s Statute of Frauds, real estate contracts must be signed and in writing to be enforceable. This includes purchase and sale agreements and property leases. The law does not specify the contents of the agreement, but an enforceable contract must generally identify the parties, describe the subject property and establish the essential terms of the agreement (e.g., price). The rest is up to the parties.
As a result, parties often memorialize purchase agreements or leases using pre-printed forms that include the basic elements required to formalize an agreement. While these agreements may save time and money, they are not tailored to reflect the specific circumstances of the parties or the property. Therefore, they may not adequately protect the parties’ legal rights. While a pre-printed form is often used by brokers in connection with residential sales such forms lack the detail and sophistication generally necessary in a commercial setting. In addition, commercial sales require attention to a variety of tax, transfer and cancellation rights and options that vary substantially from the basic pre-printed forms.
Common contract provisions not found in most standard agreements include contingencies and inspections. For instance, residential buyers may want to include a contingency relieving performance if they are unable to secure financing. In commercial transactions, buyers may want to investigate the zoning of the property or potential environmental liabilities prior to closing the deal.
Negotiating a real estate agreement
The terms of a real estate agreement can always be negotiated, even if you are presented with a “standard” contract form. While the best option is to consult with an experienced Monmouth County real estate attorney, buyers and sellers can take steps to protect their best interests. Below are a few tips:
- Don’t assume the contact is fair: If the other party drafted the agreement, don’t assume that the terms are fair. Instead, the rights and obligations of the parties will generally favor the drafter. The negotiation process is the opportunity for the other party to protect its interests.
- Conduct due diligence: It is difficult to assess your negotiating leverage without conducting some research. For instance, when the Myrtle Beach real estate market is flooded with inventory, the buyer may have the power to negotiate concessions from the seller.
- Understand the terms: It is impossible to successfully negotiate an agreement without fully understanding the terms. While most agreements contain a substantial amount of “legalese,” it is important to read the real estate contract in its entirety and understand how each provision may impact your rights.
- Legal vs. business: The legal and business terms of leases and purchase and sale agreements often overlap; it is important that these overlaps be recognized and the solutions be properly blended.