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How contingency clauses affect your commercial real estate deal

On Behalf of | Feb 7, 2024 | Real Estate Law |

When it comes to your commercial real estate deal, few things are as crucial as contingency clauses. These contract provisions can significantly impact your transaction by offering protection and flexibility.

There are various types of clauses, so it’s important to understand how they work.

The escape clause

Contingency clauses are certain conditions that must be met for the real estate deal to go through. They offer protection to both buyers and sellers because these clauses allow either party to back out of the agreement under certain conditions without legal or financial repercussions.

The most common contingency clauses in commercial real estate include:

  • The inspection contingency allows the buyer a specified amount of time to conduct a thorough inspection of the property. If there are any issues that the buyer is not comfortable with, they can back out of the deal.
  • A financing contingency protects the buyer if they can’t secure the necessary monies for the purchase. The contract can be canceled if they can’t obtain financing within a specified period.
  • An appraisal contingency gives the buyer the right to negotiate the price or terminate the contract if the property’s appraised value is lower than the purchase price.
  • Under an environmental contingency, the buyer can conduct environmental assessments of the property. The buyer can cancel the deal if the assessment reveals concerns, such as contamination.

Contingency clauses can also protect the seller by allowing them to continue to market the property in the event the buyer can’t meet their obligations within a specified period. While contingencies are essential in real estate agreements to protect both parties, they can cause delays because each contingency needs to be fulfilled before the deal can proceed.

The wording in contingency clauses is crucial, so it’s always best to have someone review the contract before moving forward with your commercial real estate deal.