Real estate contracts almost always contain “contingencies,” i.e. – a condition or set of conditions on performance –written into the contract itself. They’re called contingencies because if they don’t occur, the entire contract can be legally thrown out without penalty. In this sense, contingencies are like escape hatches in real estate contracts. They are very common add-ons to contracts, and are often practically necessary.
Examples of Contingencies in Real Estate Contracts
Contingencies are particularly common in commercial real estate transactions. You might, for example, sign a contract to buy a building, but make your closing obligation (or other type of performance obligation) “contingent” on various things. Examples of contingencies on a contract to purchase commercial property include:
(1) Your being able to get a mortgage loan of at least 75% of the purchase price (a “mortgage contingency”);
(2) Your having a contractor inspect the condition of the building and your being satisfied with the contractor’s report (an “inspection contingency”);
(3) Your determination that the building can be renovated to your satisfaction;
(4) Your being satisfied with a forthcoming environmental hazards report; and/or
(5) The successful sale (or purchase) of a different piece of commercial real estate (an “other sale contingency”). This last contingency is often seen in purchase contracts in which the sale of the first piece of real estate is meant to finance the sale of the second piece.
Reason for Contingencies in Real Estate Contracts
The above are just a few examples of contingencies in real estate contracts. As you can see, contingencies are designed to ensure that the parties’ fundamental reasons for entering into the contract are protected. Including contingencies also frees up valuable time and energy for negotiating the contract itself, instead of the contract’s non-negotiable pre-conditions. The details of performance obligations, consideration, enforcement, and timing/duration are just a few of the issues that are handled more efficiently during the contract negotiation itself.
Getting Help with Contingencies in Real Esate Contracts
These and many other types of contingencies are often available for commercial real estate transactions. Your lawyer can help you put the right contingencies in place for the commercial building contract you are considering.