Commercial Real Estate Purchase Agreements: Key Provisions for Buyers and Sellers
A commercial real estate purchase and sale agreement is the operating manual for the period between signing and closing. It determines what the buyer may investigate, what the seller must deliver, which conditions must be satisfied and who bears the economic consequences if the transaction fails.
Define the Asset Being Sold
The agreement should identify the land and improvements and address related rights and property such as easements, leases, security deposits, service contracts, permits, plans, warranties and specified personal property. A street address alone may not capture the entire transaction.
Deposit and Purchase Price
The contract should address the amount and timing of the deposit, the escrow holder, when the deposit becomes nonrefundable, circumstances permitting its return and its treatment following default. Those provisions should be read with the remedies section.
Due Diligence Is a Process, Not a Clause
Depending on the asset, a buyer may investigate physical condition, environmental matters, zoning, leases, tenant payment history, operating expenses, service contracts, permits, title, survey matters, insurance, taxes and development constraints.
The agreement should establish when diligence begins, when it ends, what materials the seller must deliver and what happens if the buyer disapproves of the results.
Title and Survey
The contract may establish procedures for title reports, objections, seller responses, monetary liens, easements, CC&Rs and survey matters. It should also address the consequences if an objection cannot or will not be cured.
Financing
If financing is a condition to closing, define the contingency precisely. Relevant issues can include lender approval, appraisal, deadlines, acceptable loan terms and the point at which the deposit becomes nonrefundable.
Representations, Warranties and “As Is” Terms
Representations can address authority, litigation, leases, contracts, governmental notices, environmental matters, condemnation and other property-specific issues. Knowledge qualifiers and survival periods often receive substantial negotiation.
An “as is” clause should be read together with express representations, fraud principles, statutory obligations and the buyer's diligence rights. For example, California law imposes specific disclosure duties in certain circumstances involving known hazardous-substance releases on nonresidential property.
Existing Leases
For income-producing property, the leases may be central to value. The agreement should address rent rolls, deposits, tenant defaults, amendments, new leases, estoppel certificates, subordination documents and leasing commissions.
Risk of Loss Before Closing
The agreement should address casualty and condemnation before closing, including termination rights, materiality thresholds and the treatment of insurance or condemnation proceeds.
Closing Conditions
Identify what must be true or delivered before a party is obligated to close: accuracy of representations, required documents, title condition, tenant estoppels, lender requirements and performance of pre-closing covenants.
Default, Liquidated Damages and Specific Performance
The remedies section can determine whether a failed closing results in return of the deposit, liquidated damages, specific performance or another negotiated remedy. California Civil Code section 1671 governs liquidated-damages provisions outside the special statutory framework applicable to certain residential transactions.
California Civil Code section 3387 also supplies an important backdrop to specific-performance negotiations by addressing the adequacy of damages for breach of an agreement to transfer real property. Commercial parties should therefore negotiate remedies deliberately rather than importing assumptions from residential forms.
Closing Costs, Transfer Taxes and Measure ULA
The agreement should allocate escrow charges, title premiums, recording fees, transfer taxes, lender costs, brokerage commissions and other closing expenses.
For property within the City of Los Angeles, Measure ULA can materially affect the economics of a high-value transaction, including commercial property. The City states that for transactions closing after June 30, 2026, the adjusted thresholds are $5.4 million and $10.9 million, with additional ULA rates of 4% and 5.5% respectively. Because the thresholds adjust, parties should confirm the amounts applicable to the actual closing date and negotiate who bears the tax.
California Real Estate Withholding
Closing documentation should address California real estate withholding in addition to federal FIRPTA issues where applicable. The Franchise Tax Board uses Form 593 for California real estate withholding and states that withholding generally applies to transfers of California real property unless an exemption applies.
Pre-Closing Operations
The buyer may require the property to be operated in the ordinary course before closing and may restrict new leases, material contract changes, removal of property or other significant actions without consent.
Closing Deliverables
The closing checklist may include the deed, bill of sale, assignments of leases and contracts, tenant notices, tax documentation, closing statements and entity authorizations. The purchase agreement should identify the material deliverables rather than leave them to be negotiated on the eve of closing.
Use the Agreement to Resolve Business Issues Early
The best time to resolve diligence rights, title issues, tax allocation, remedies and closing conditions is before the parties become locked into competing interpretations of a signed agreement.
For commercial acquisitions and dispositions, see the firm's commercial real estate transactions practice and its real estate contract drafting and negotiation practice.
This article is for general informational purposes and is not legal or tax advice.
