In New York, any agreement involving real estate must be in writing in order to be enforceable. For commercial properties, you need a Purchase and Sale Agreement (PSA). This document spells out all the key parts of the transaction, including the purchase price, property details, inspection periods and closing timeline.
The PSA also protects both buyers and sellers by listing when and how either side can walk away from the deal. However, while PSAs create legally binding obligations between parties, certain situations may also give buyers legal grounds to end it.
When problems come up during due diligence
The due diligence process can reveal serious issues that allow buyers to terminate their contracts. This can include:
- Major structural issues: Issues like foundation cracks or roof damage often require costly repairs that change the deal’s value.
- Environmental issues: Tests might find toxic materials in the building or soil. These problems cost a lot to clean up and could lead to potential legal liability.
- Zoning issues: Research may reveal the property violates local zoning laws. In some cases, planned changes won’t meet current regulations.
- Title problems: Title searches can uncover undisclosed liens, easements or restrictions that limit property use or value.
Unlike residential real estate transactions, sellers generally don’t have to disclose property conditions for commercial real estate. However, if a seller hides problems or lies about important facts about the property, you may have grounds to end the deal.
When financing falls through
Problems with financing may be a valid reason to end a PSA, but only if it includes a financing contingency. It typically lets you end your contract if your lender denies funding or changes important loan terms. The specific requirements vary depending on each contract, but often include:
- Submitting your loan application by the contract deadline
- Showing you made a good faith effort to get financing
- Giving prompt written notice to the seller if the loan falls through
- Providing proof from your lender about the denial or changed terms
Take note that the financing contingency protects you only if you follow its specific requirements. Missing deadlines or failing to properly document loan issues could mean losing your right to terminate, even if you can’t get the loan you need.
Commercial real estate issues rarely get simpler on their own
A real estate attorney can help you review your PSA and protect your investment.
