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If you are looking to sell your commercial property, you will have to enter a sale and purchase agreement with your purchaser. These agreements can be quite extensive, and it may be confusing what provisions you should give close attention to. This article will outline:

  • what a sale and purchase agreement is; and
  • the provisions in the agreement that you should carefully examine before signing.

What is a Sale and Purchase Agreement?

A sale and purchase agreement is the written, legally binding contract that you enter into with the individual or business that you are selling your property to. This agreement will set out the details, terms and conditions of your sale. The contract will contain:

  • your details, as the vendor or seller;
  • details of the party that you are selling the property to;
  • the title of your property, such as freehold, unit title or cross lease;
  • the price that you are selling the property for; 
  • the date that the offer of sale ends. This provision is known as a sunset clause;
  • the deposit that the buyer must pay for the property; 
  • any chattels, or items that are being sold with the property; and
  • the details of the conditions that must be fulfilled. Conditions are the obligations that you and your purchaser must fulfil to complete the sale of your property, such as your purchaser paying their deposit. Once these obligations are fulfilled, your agreement will become unconditional, and the sale will be finalised.

You and your purchaser must sign the agreement for it to be legally binding. However, before you sign the agreement, there are certain provisions that you should examine carefully. These provisions include the:

  • warranties that you, as the vendor or the seller of the property, are taking on;
  • LIM, or Land Information Memorandum report, clause; and
  • cash-out clause.

Vendor Warranties

Your sale and purchase agreement will likely contain warranties, or promises, that you are expected to uphold to your purchaser. 

For example, you will have to warrant that at the date of settlement the chattels, such as the air-conditioning and alarm systems, that accompany the purchase of your property are all in reasonable working order.

It is crucial that you have read through and are aware of all of the warranties contained in the sale and purchase agreement before you finalise the sale of your property. If you have breached one of your warranties, the purchaser of your property is entitled to seek compensation for any harm that they have suffered as a result of this breach.

Land Information Memorandum Report Clause

The sale and purchase contract will contain a clause on, or address, a Land Information Memorandum (LIM) report. If your agreement does not contain such a clause, it is still best practice to obtain a LIM report to produce for any potential purchasers. A LIM report is a summary of the details that your local council holds on your property, such as:

  • the rates your property is subject to, including any overdue rates;
  • building consents;
  • any potential erosion, flooding or hazardous substances that could affect your property; and
  • stormwater and sewerage drains.

Obtaining a LIM report will ensure that you are aware of any outstanding issues with your property and provide you with time to rectify them. 

Cash-Out Clause

A cash-out, or escape, clause provides you with the opportunity to consider other, more favourable offers while you wait for a condition to be met by an existing purchaser. The inclusion of such a clause in your sale and purchase agreement can assist you in securing the best offer possible for your property.

However, if you are going to include a cash-out clause in your agreement, it is crucial that you are aware of how it operates. You cannot simply cancel your first sale and purchase agreement as soon as you receive a better offer. The purchaser has the chance to fulfil their conditions and declare the agreement unconditional. If that occurs, you are bound to commit to the sale to that purchaser. It is best practice to include a clause in any back-up offers that the agreement is dependent on the initial, existing offer coming to an end. 

Key Takeaways

If you are going to sell your commercial property, you will have to enter into a sale and purchase agreement with the purchaser of your premises. This agreement will contain all of the details, terms and conditions of your sale. It is only binding once you and your purchaser sign the agreement document. However, before you sign the agreement, you should review:

  • your warranties as a vendor of property;
  • the Land Information Memorandum report clause; and
  • the cash-out clause.

If you need assistance with drafting a sale and purchase agreement, our property and leasing lawyers can help. Contact us on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What is a sale and purchase agreement?

A sale and purchase agreement is the written, legally binding contract that a seller of property enters into with the individual or business that they are selling the property to.

Is a sale and purchase agreement binding? 

 
A sale and purchase agreement is binding if it is conveyed in a written document, the agreement is signed by the vendor and purchaser of the property and all of the conditions of the sale have been fulfilled. 

What should a sale and purchase agreement contain?

A sale and purchase agreement will likely contain the details of the vendor and purchaser, the title of the property, such as unit title, the price of the property, the deposit that the purchaser must pay for the property, any chattels that are being sold with the property and the details of the conditions that must be fulfilled. 

What are conditions? 

Conditions are the obligations that the vendor and purchaser must fulfil to complete the sale of the property, such as the purchaser paying their deposit.

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