Important Contract Contingencies for Commercial Real Estate Transactions

There are a number of important buyer’s contingencies that are included in commercial real estate offers and contracts, and like any other clause in a contract, the language of these contingencies can be drafted to favor either the buyer or the seller. These terms give a party a way out of the deal if expectations aren’t met by the other party and condition the sale on the fulfillment of a number of conditions. The most typical contingencies are listed below, along with a brief explanation of each.

Financing Contingencies

Perhaps the most typical contingency clause in a real estate contract deals with financing. This clause will specify that the buyer’s ability to secure financing for the property is a condition of the offer to buy. In order to prevent the buyer from being forced into a deal even if financing is only available at unreasonably high rates, this contingency frequently specifies the terms of the necessary financing. However, sellers prefer and ought to ask for broader conditions, like financing under “commercially reasonable terms.” Even when a loan has already been obtained, buyers should always include a financing contingency unless they intend to pay cash for the property.

Land Use and Zoning Contingencies

Land use and zoning contingencies are important because the value of commercial real estate to a buyer depends on how well it serves their intended purposes. To protect the buyer’s ability to use the property as expected, any change in the intended use of the property from the current use should be accompanied by a zoning/land use contingency. Any special permits or approvals should be covered by a buyer’s zoning/land use contingency, but sellers should insist that these requests be made promptly and should set clear guidelines for how long they can take.

Environmental Contingencies

A satisfactory report on the environmental conditions affecting the property is a requirement for the sale to close under environmental contingencies. These clauses are crucial in general, but they become even more crucial if there are potential environmental risks from previous uses or if the property’s intended use in the future could have an impact on the environment. 

Inspection Contingencies

An inspection period of the property may be included as a contingency by the buyer. The buyer can retain experts during this time to evaluate the property, ascertain whether it is fit for the intended use, and make any necessary improvements or repairs. 

Alvarez & Diaz-Silveira LLP is a corporate law firm in Miami, focusing on international and domestic M&A, finance, real estate and corporate immigration. If you or your business needs legal advice, contact an M&A Attorney in Miami for help.