Contingencies in Commercial Real Estate Contracts
UPDATED: September 19, 2013
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Most real estate contracts contain “contingencies,” which allow you to walk away from the deal without penalty. If the conditions written in the contract are not met, you can withdraw from the entire contract as if it never happened.
Reason for Contingencies in Real Estate Contracts
Contingencies offer you protection by requiring the performance of the conditions you negotiated into the contract. Yes, you can back out and use the nonperformance of the contingency as your reason. But, you can also use the written requirement incorporated into your agreement as a negotiating tool for further negotiation. Your new "contingency" might better serve you by offering you an even better deal after nonperformance of the prior condition.
Examples of Contingencies in Real Estate Contracts
Examples of contingencies in a contract to purchase commercial property include the following:
(1) Mortgage Contingency - You are able to get a mortgage loan of at least 75% of the purchase price.
(2) Inspection Contingency - You require a contractor to inspect the condition of the building and are satisfied with the contractor’s report. Another example is your determination after inspection that the building can be renovated to your satisfaction.
(3) Other Sale Contingency - You require the successful sale (or purchase) of a different piece of commercial real estate. This 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.
Getting Help with Contingencies in Real Esate Contracts
Your commercial real estate lawyer can help you determine the right contingencies to put in your commercial building contract as well as draft the best language to cover your comditions for executiom of the agreement.