Contracts exist for the protection of all parties so that the price, terms and conditions can be agreed to in writing without misunderstanding. The best contracts are those that are written in plain English where nothing is left to ambiguity or misinterpretation.
Often problems arise when one party misses a deadline and fails to inform the other side as to the reason for their tardiness. A lack of communication can lead to conflict and sometimes even litigation if the matter is serious enough.
It behooves everyone involved with any type of contract to maintain good communication with the other parties and meet every deadline.
The two most commonly used contracts are the listing agreement and the purchase agreement. Listing agreements are usually exclusive arrangements between the seller and the listing broker. Agents represent a broker but agents themselves do not own the listing per se. The terms of the listing agreement include the beginning and ending dates, price, showing instructions, whether furnishings are included, etc.
Purchase agreements are extremely lengthy documents that contain very detailed terms and conditions along with several pages of disclosure forms. There are deadlines for the performance of specific terms such as the earnest money deposit, inspections, contingency removals, etc.
In the event that one party is unable to meet a deadline they should always notify the other party in advance and try to work out an extension so the deal can move forward in good faith.
Leases are another very common form of real estate contract where having everything in writing is critical to avoid misunderstandings.
We still occasionally see people renting a property to a tenant without any written agreement. This can be a roadmap to disaster. No matter how well you know someone, it is absolutely critical to have a written lease when it comes to renting a piece of property. It makes no difference if we are talking residential or commercial real estate.
Only by having a well-crafted lease agreement can all parties ensure there will be no disagreements over the length, utilities costs, condition of the building or any other important matters.
From time to time we see various types of option agreements involving real estate. In commercial real estate sometimes a business person will purchase an option to lease a desirable space for a property that is under construction or going to be vacant in the future. The reason for doing this is that you are risking far less money than if you just signed a long-term lease.
What if something happened to your business prior to signing the option agreement and the occupancy date? With an option agreement you are limited to the cost of the option whereas if you had signed a five-year lease you would be obligated for 60 months of continuous payments.
The lease with option to purchase is something we see with residential property, especially when someone is renting a higher-priced home that they are contemplating buying. The prospective buyer gets a feel for the property and a portion of their monthly rent is sometimes credited toward the purchase price.
The buyer generally puts up a nonrefundable deposit which may or may not get credited towards the purchase price depending on the amount of money involved and the terms the deal.
Regardless of the type of contract, all parties need to adhere to deadlines and fulfill the terms and conditions of the agreement. The whole purpose of reducing everything to writing in the first place is to ensure that everyone is in agreement in regards to price, terms and conditions.
When someone breaches or defaults on a contract it’s up to the parties involved to try and work things out as quickly and amicably as possible before you wind up with an out-of-control conflict.
This article does not create an attorney-client relationship. This article is for general education purposes only and is not legal advice. You should consult with a qualified attorney before you rely on this information.