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Important Factors to Consider in the Contract of Sale for Purchase of Residential and Commercial Properties 07/10/2015

This column will discuss the process and procedures of purchasing residential and commercial properties under New Jersey real estate law. Of the many procedures in the purchase and sale of a property, the first step is the Attorney Review process. This article will discuss what sellers and buyer should consider during this time.

When a decision to purchase a home is made, the usually the initial good faith deposit payment is made and the contract of sale is signed. Thereafter a period of 3 day is allowed for each party to retain a lawyer to review the contents of the contract. At this time the each party’s attorney will review the contract for provisions that are necessary and disadvantageous to his/her respective client. After reviewing the whole contract, the buyer’s attorney will supplement and modify provisions to the contract to protect the interests of the buyer in an additional document called a rider. This rider to the contract will be sent to the seller’s attorney. If both parties consent to the rider, the original contract plus all the additional provisions and modifications will become the final contract. This process at times may take 5 to 10 days and this period is called the attorney review period.

The purchase sales agreement outlines the rights and responsibilities of the seller and buyer until closing. In the case that the contract falls through because of specific circumstances or other reasons, the agreement should include contingency provisions outlining the obligations of each party and resolution of the matter. The following contingency provisions must be included. The Mortgage Contingency allows the buyer to receive the full deposit back in the case that the bank does not approve the mortgage. Second, the Inspection Contingency allows the buyer to inspect the building for severe defects. Third, the Title Contingency so that the seller must transfer to the buyer marketable title at the time of closing. In addition for people purchasing condos, the Condo Association’s bylaws and liabilities documents should be reviewed. A contingency provision should be added that the buyer’s offer will be contingent upon the buyer’s agreement to all of condo documents. Co-ops purchasers need similar protections. For co-op buyers a Board Approval Contingency allows for the buyer to receive his/her deposit refund if their application is not approved at the Board Meeting. During the Attorney review period, the buyer’s attorney should pay particular attention to the damages and resolutions in favor of the buyer in the case that the seller cancels the contract without cause.

Buyers interested in purchasing multiplex houses and commercial properties need to consider and determine whether there is a contract with the current leasee, whether the leasor and leasee are performing the terms of the contract, whether there is unpaid rent and whether the leasee has an interest to continue the terms of the lease. Other factors that need to be considered during the Attorney Review period is whether the purchase price includes the costs of inventory, installation and furniture, the environmental problems and inspections, and whether the transaction is a short sale.

Unlike most contracts for the purchase-sale of residential properties that are made before the attorney review process, the contract of sale for commercial properties are drafted by the attorneys of both the seller and buyer prior to signing the contract. The process of negotiation and review is done prior to agreement of the contract with all the above mentioned contingencies included as well.

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