Purchase Agreements
Purchase Agreements are contracts with the buyer of real property, whether raw land or improved properties. The purpose of these agreements is to spell out the terms and conditions and the obligations of both parties so there is no confusion regarding the transaction and to allow each party the opportunity to conduct appropriate due diligence.
There are certain essential elements that are generally included in purchase agreements. Purchase price, financing (if applicable), time for inspections, obligations of seller, obligations of buyer, title contingencies, home sale contingencies, earnest money deposit, and the closing date are all items that must be included in a purchase agreement .
Specific clauses that are used in purchase agreements are very common and can vary depending upon the nature of the transaction. Since it’s so common, parties need to understand the release clause, which sets out that if a buyer fails to close on the property, seller retains the deposit as its sole and exclusive remedy and the buyer is released from any further liability. Another common clause is the specific performance clause, which is another way of stating that the buyer must perform under the contract or that the buyer will be liable for damages, including the earnest money deposit.
Lease Agreements
Lease agreements are generally contracts between a property owner and someone who desires to possess, occupy, and use the property for some defined purpose. Whereas a sale of real estate results in the ownership being conveyed from one person to another, a lease is a conveyance of a right to possession but not a conveyance of ownership. Leases may be created for residential purposes, commercial or business uses, and, in some cases, for farming or agricultural uses. Leases may be short-term or long-term depending on the particular intent of the parties, including whether it is a residential lease for someone renting an apartment for a year, or a long-term lease for commercial space for a business.
Lease agreements are often known as leases or leasehold agreements. These agreements also go by the name of rental or rental agreements or simply a tenancy. Even if a party does not specifically call an agreement by one of those names, any leasing of real estate to someone else will likely be a lease or a rental under the law, subject to special laws in certain jurisdictions such as rent control statutes.
Real Estate Option Agreements
Under an option agreement, the optionor agrees to sell the property and the optionee agrees to buy the property within a specified period of time, with all of the other conditions as agreed to by the parties. Option agreements are a good way to deal with longer term projects where a relatively small amount is paid for the option, but the conditions precedent to the actual purchase may take several years. There is no traditional lender who will lend on the property based on the as if sold value, so the parties can take advantage of this approach to a longer-term development. The options (if not exercised) may be subject to extension, but only under the terms provided for in the agreement. The termination of the option upon the expiration of the term may provide for the recovery of the option payments or deductions based on any capital that has been expended in connection with the property.
Contract for Deed
A contract for deed is a financing arrangement between a buyer and a seller of real property. The seller retains title to the property, and the buyer makes payments according to the terms of the purchase agreement. The buyer acquires equitable title to the property, and is able to reside in the property according to the terms of the purchase agreement. At the end of the contract period, the buyer has the option to acquire full title to the property by making the final payment, and potentially paying any other conditions of the contract such as transfer taxes.
The main advantage to this type of purchase agreement is flexibility. In theory, a contract for deed might be used to close a sale that a lender will not authorize because of credit issues. It may be useful for a seller to carry all or a portion of the financing, thereby making a property more alluring to buyers. Most qualified buyers will opt to obtain financing through a traditional lending institution, but the contract for deed offers flexibility to the less conventional buyer, seller and property.
Agreements Pertaining to The Right of First Refusal
At times, a landlord may want to know that if the tenant at his property decides to sell, lease or upgrade the property, to whom such right(s) will be granted? In such instances, it would be in the landlord’s best interest to require a simple right of first refusal (ROFR) clause in his agreement with the tenant which would allow the landlord a right to purchase any other property the tenant may have an interest in before the parties part ways. As a landlord, the company I work for always includes a ROFR clause in all of our agreements with our tenants. In the alternative, sometimes tenants even negotiate with landlords to include such clauses in their lease agreements. The agreement usually reads something like "Tenant hereby grants to Landlord a non-exclusive, right of first refusal to purchase all or any portion of the Leased Premises." The value of this is both parties knowing that whatever the tenant decides to do later on such as sale of the property, it is up to the landlord to purchase said property before anyone else may do so. Sometimes it may be wise for a tenant to negotiate with the landlord when the lease is up for renewal to a ROFR clause as well. It can work both ways. If the tenant would like to buy the property rather than renewing a lease , the ROFR should be in his favor. This is another example of how ROFR can benefit both sides without too much friction. As with any other agreement, ROFR clauses too, have their fair share of advantages and disadvantages which buyers and sellers should both be aware of. For instance, not everyone is willing to agree with a clause that restricts the tenant’s freedom to freely sell his property to the highest bidder especially where other covenantors are involved. Furthermore, some people don’t favor this type of agreement as they may rush into purchasing property that is not yet ready to go on the market or has received an offer for purchase and will than have to take ownership of a property that he may not have bargained for. This could be a win or lose for a tenant. Certificate of Occupancies, property taxes, financing, environmental concerns, codes and restrictions, legal documents, permits and land use, code inspections and endless other legal documents are also some possible takeaways from a ROFR clause.
Assignment Contracts Related to Real Estate
Assignment contracts in real estate investing are exactly what they sound like-they allow the assignment of a contract. In real estate terms, this means that one party assigns their rights to purchase or sell a property to another party, with the understanding that the second party will compensate them for that right, generally in the form of an option fee. The sales contract is entered into with two sets of language, one for the initial parties, and one for a third-party assignee. The language means that the sale can still go through even if the original buyer backed out-the sale will simply take place between the original seller and the assignee. Assignment contracts are generally preferable to joint venture agreements for investors because of their low cost, multi-transaction capacity and immense flexibility. Similar to a joint venture agreement, they allow you to partner with someone else-but with an assignment contract, you only need financing for the property itself, not the partnership.
Easement Agreement
Easement agreements: A real estate agreement that impacts the use of a property
An easement agreement grants a person or business the right to use, or limit a property owner’s use of, portions of another’s real property. Easements may be in perpetuity, meaning there is no set end date.
Easements may be necessary for utility service providers or for design, construction and maintenance of many projects. Examples include electric, water, telephone, cable and sewer lines. Easements may also be reserved for ingress and egress to a parcel of land.
An easement agreement grants the holder the right to enjoy a beneficial use of that area and is often negotiated as part of a commercial real estate transaction. It is important to confirm that the easement will not limit the property owner’s right to use his property by granting someone else a superior right.
There are several types of easements . These include:
•Utility easements allow utility companies to install and maintain their utilities. Most often they are associated with underground utility lines, although telecommunication companies may have the right to install towers, which are subject to local zoning ordinances.
•Personal easements allow a person or business to use or restrict an area of real property. For example, the owner of property may want to grant a specific person the right to cross over their land, such as a neighbor wanting to access a lake.
•Commercial easements are similar to personal easements and are most often granted to businesses who need access for underground infrastructure.
•Prescriptive easements are granted inadvertently when an individual, at the time of the act, does not know that the land belongs to someone else. However, it is required that the person claiming the easement openly, continuously and without permission of the land owner for a period of time prescribed by state law.