Almost every association of realtors, whether commercial or residential, has a set of form contracts for the purchase and sale, lease or lease option of real property. For many transactions, these forms will cover all the legal bases. However, there are circumstances when a custom drafted contract is warranted for a real estate transaction. This is more common with commercial real estate, but there are circumstances in which a custom contract is also advisable for a residential transaction.
When should you seek out an attorney’s help in drafting a custom contract for the purchase and sale of a home, investment or commercial property? Below is a short list of circumstances when a custom contract or terms may be advisable:
- Are you changing the use or developing the property in a way that is different from its existing use? In that case you may need custom language that provides specific contingencies and due diligence review to protect your ability to cancel the contract if the property turns out not to be feasible for your intended use.
- Are you purchasing something more than just a house or building? If you are also purchasing development rights or plans, water rights, grazing or agricultural rights or an ongoing business operation on the property, you may want customized contract terms or multiple contracts.
- Are you purchasing or leasing multiple parcels or multiple parcels with different use? Are you purchasing multiple parcels from different sellers? Incline Law Group recently assisted with the acquisition of 6 parcels with four different types of use – multifamily, single family, commercial and mixed use (office/residential). With the complexity of the various leases, rent rolls, ongoing business operations and more, a form commercial purchase and sale contract just could not address all of the issues and we used a custom contract.
- Is the property currently leased? The more tenants you have, the more complex the transaction can become. That does not necessarily mean you need a custom contract, but you do want to be sure you are properly assigning leases, accounting for security deposits and addressing open tenant issues.
- Are there a lot of moving parts? In general, the more complex a real estate transaction is, whether that is because of the nature of the property, the type of use, the complexity of due diligence issues or the sophistication level of the parties, the more advisable it is for you to seek the assistance of an attorney and consider the use of a custom contract.
There may be plenty of other circumstances in which a custom contract, or at least custom drafted contract provisions, are advisable. Not every real estate transaction needs a custom contract or terms, but when in doubt, you should seek the advice of legal counsel.