We recommend people engage an attorney to advise on the purchase and sale of commercial real estate. Many deals are completed without such counsel, though. Instead, they may involve a real estate broker who uses an Oregon Real Estate Forms Sale Agreement. Following are descriptions of some of the features of OREF C-501, the Commercial Real Estate Sale Agreement, which is available at orefonline.com/oref-library. Many of the concepts also apply to other sale agreements, including 001: Residential Real Estate Sale Agreement; 005: Farms, Ranches, Acreage, and Natural Resource Property Real Estate Sale Agreement; and C-506: Vacant Land Real Estate Sale Agreement.

It’s unlikely that even the most basic transaction will fit within the form alone, so OREF offers various addenda to address personal property, leases, and financing. A template addendum is generally preferable to a blank one drafted by a non-attorney, but every additional piece increases the need for legal counsel. Brokers must avoid the unauthorized practice of law, though protections exist for acts within the scope of a broker’s license (ORS 9.160(4)). The outline below addresses some common issues with these forms but not all of them. The discussion below may not be applicable to all transactions; specifics should always be discussed with counsel.

Property description

Legal descriptions add clarity — Online resources are available to obtain vesting deeds prior to signing, which will confirm the exact owner(s) and legal description to help prevent errors and misunderstandings.

Personal property

Bills of sale convey personal property — The form is not clear whether a bill of sale is necessary to convey ownership of personal property, and OREF C-512: Bill of Sale omits many potentially vital protections, such as a warranty disclaimer.

Financing

• • Lenders add complexity — If a lender is involved in the transaction, further documents and steps may be necessary, and most lenders can assist; however, a lawyer is recommended for the buyer/borrower to understand rights, obligations, timing, and deliverables most fully.
  • Understand seller-carried financing versus land sale contract — A land sale contract and seller-carried financing both allow a buyer to pay over time. In general, seller-carried financing is more commonly used, because nonjudicial foreclosures through a deed of trust provide more definitive seller remedies for nonpayment.
  • Addendum — If the parties use OREF C-557: Seller-Carried Transaction Addendum, it should be joined by appropriate loan documents, likely in the form of OREF 034: Seller-Carried Deed of Trust and OREF 035: Seller-Carried Promissory Note Secured by Deed of Trust. These forms may cover a party’s needs but their ambiguities and deficiencies are beyond the scope of this article.

Due diligence

• • Allow time for inspection — Generally, the default due diligence period of 30 days in the form is short. The time allotted should reflect the level of investigation a buyer contemplates. For example, if the buyer intends to obtain a survey or environmental report, 30 days may be insufficient.
  • Know what’s missing — Property inspection is a top concern for many buyers, so sellers may want to address the risk of others entering the property. For example, the form omits limitations on entry (e.g., prior notice), insurance and indemnification protections for sellers, and zoning and permitting diligence for buyers.

Title insurance

• • Understand title insurance — The best protection against title defects is title insurance. An understanding of its limitations and options is worthwhile.
  • Allow time for title review — As with general due diligence, the form cites a relatively short period (seven days) to review a title report. If a party anticipates any title complexity (e.g. easements, liens, covenants and restrictions), a longer review period should be considered.
  • Owner’s affidavit increases title coverage — Sellers typically deliver an owner’s affidavit at closing, which includes key seller representations to the title company, provides a cleaner title policy for buyers, and is required for extended owner’s coverage.

Business documents

Leases — If the property is subject to existing leases, OREF C-520: Assignment and Assumption of Leases effectively transfers a seller’s rights as a landlord. Additional consideration may be given to the landlord-tenant relationship, however – including handling of tenant funds and potential transfer restrictions or requirements in the leases.

Closing

• • Provide clear instructions to escrow — Closing can be as simple as exchanging money for a deed, but it often involves ancillary documents. A well-drafted agreement addresses each party’s closing deliveries and obligations in more detail than the form, and closing mishaps may be avoided with detailed escrow instructions.
  • Special warranty deed is a middle ground — The form defaults to a statutory warranty deed, which has a seller warranting title before the seller was owner. Generally, the market standard is a special warranty deed, which only warrants title during the seller’s ownership; whereas a bargain and sale deed or quitclaim deed are the most seller-favorable and provide no warranty. Sellers should consider making this easy change; title insurance can mitigate a buyer’s risk for issues created by prior owners.

Boilerplate

• • Default and remedies — The form does not fully address (see one sentence on line342) buyer or seller default and appropriate remedies, including limitations on seller liability. These provisions can help to ensure all parties grasp how failures, breaches, damages, and cash deposits will be treated.
  • Casualty and condemnation — The form does not address rights, remedies, or risk of loss if a casualty event or condemnation proceeding occurs prior to closing. Although these are uncommon, the ramifications can be significant and can be addressed upfront.
  • Attorney fees — To ensure the prevailing party in litigation is awarded attorney fees in Oregon, the contract in question must include an explicit attorney fee provision, which the form does not.
  • Seller representations — A critical and highly negotiated section of sale agreements is seller’s representations and warranties, in which sellers make certain statements and promises about the state of the property. Buyers typically desire more protection than the Seller Representations offered in Section 13 of the form, and sellers typically seek to minimize or limit representations, often with knowledge or notice qualifiers.
  • Buyer representations — Additionally, the form has no buyer representations. Buyer’s representations are typically less extensive but are often important for sellers.
    Seller covenants — What can or must a seller do with the property between signing and closing? This question is not thoroughly addressed by Section 16 of the form. Many transactions will require terms that address insurance, new and existing contracts/leases, maintenance, operations, and loan obligations.

A real estate attorney’s involvement might be limited to reviewing documents drafted by a broker to spot-check or provide explanations to a client; or it can involve preparing a thorough and custom-drafted purchase and sale agreement. The hire of an attorney does not have to break the bank, and it can prevent unnecessary disputes down the road.

This column is intended to provide readers with general information and not legal advice. Consult professional counsel for help regarding specific situations.

Column first appeared in the Oregon Daily Journal of Commerce on October 18, 2024.