– Seller Default: It Happens, So Prepare in Advance if You are a Commercial Real Estate Investor –
It doesn’t happen that often, but when a seller backs out of a transaction, it can create havoc for the commercial real estate investor. There are remedies for the buyer scorned.
Sales contracts
Most standard contracts include provisions that clearly spell out what will happen in case either party defaults after the conditional period. The prudent investor should ensure that an experienced real estate lawyer draws up the agreement and that it includes penalties against the seller should he or she default.
Also, your lawyer likely will recommend including a timely closing clause with penalties in the event it doesn’t occur. This way the process won’t drag on, which again can create havoc for the commercial real estate investor.
Penalties
Defining penalties in the agreement has two benefits: They become part of the negotiation process and, by spelling out the penalties of defaulting, the seller is given an incentive to bring the transaction to a close.
In most states, if the seller defaults you will be able to take him or her to court, seeking an order for specific performance, which effectively requires the party to adhere to the terms of the contract.
The order may force the seller to transfer the property to the buyer once the buyer has paid the agreed-upon price to the seller or be found in contempt of court.
Of course, there is no guarantee that the court will find in your favor, and you would be wise to consult in advance with an experienced real estate lawyer.
Contact a Commercial Real Estate Expert today:
Luke LeGrand, ePRO 210-843-5853
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