Whether you’re buying a commercial property or transferring significant assets, a purchase and sale agreement is the legal backbone of the deal. This document sets the terms for the transaction and outlines the rights and obligations of both parties. Instead of making a handshake deal for a major asset, having a binding contract can protect all of the parties involved.
While these agreements are common in both real estate and business transactions, they are often misunderstood. Parties may rush to sign a standard template or assume all the key details are covered in initial discussions. Instead, a custom agreement would have better served all of the parties involved.
A well-drafted purchase and sale agreement doesn’t just finalize a transaction. It also can set expectations between parties and give you a better chance of the process going off without a hitch. Accordingly, the hiring of an experienced attorney to oversee the contract and transaction is strongly encouraged.
What Is a Purchase and Sale Agreement?
A purchase and sale agreement (PSA) is a legally binding contract between a buyer and a seller that outlines the terms and conditions of a major transaction. They are frequently used for things like real estate transactions or the sale of business assets. It serves as the formal blueprint for how the sale will proceed, including key provisions like the purchase price, payment method, timeline, and contingencies. The PSA is typically executed after initial negotiations or a letter of intent and represents the final, enforceable understanding between the parties.
In real estate, the PSA sets out all of the important details, like the location of the property being transferred and the closing date.
In business transactions, the agreement may cover the sale of a variety of assets, including physical items or intellectual property.
It should come as no surprise that the specific details of each agreement can vary dramatically depending on the type of property in question.
Unlike preliminary documents, the PSA is enforceable in court and will govern what happens if either party fails to meet their obligations. Because of its importance, every term should be clearly written and reviewed by legal counsel before the document is signed. Let Bradshaw Law ensure you get the agreement your organization needs.
Key Parts of a PSA
While each of these contracts is unique, there are certain factors that every agreement should address. These provisions should be clear in the expectations for each party as well as the duties that are intended to be carried out.
Party Information
First and foremost, every agreement has to identify the buyers of sellers. This is true whether you are entering into a contract for real estate or some other type of asset. The contracts can also highlight authorized signatories and any other parties who might be affiliated with the deal.
Description of Property
Equally important is the description of the property or business being sold. The details must be precise, as any mistake could impact your legal rights or even void the deal entirely. This is one section where ambiguity can be a worst-case scenario.
Payment Terms
Another critical aspect of every agreement are the purchase price and payment terms. This goes beyond just listing the final price, as an agreement can also address whether those payments are made in installments or financed through a third party.
Contingencies
Some purchase agreements also include contingency terms. For example, the seller might require the buyer to arrange for financing before the deal can go through. Other common contingent terms might involve proving clear title or ownership of the asset. It is vital that these aspects of the agreement are in writing with unambiguous terms.
Governing Law
Disputes can happen, even when the terms of an agreement are carefully drafted and reviewed. To address the potential for litigation, it is important to include terms regarding governing law or dispute resolution. This allows you to determine what court has jurisdiction to hear a dispute or if it is necessary to go through arbitration first.
Common Mistakes to Avoid in a Purchase and Sale Agreement
Even experienced buyers and sellers can make costly errors when drafting or signing a purchase and sale agreement. Below are some of the most common mistakes to avoid.
Vague or Generic Language
Using vague terms or boilerplate contract language can leave critical points open to interpretation. This ambiguity can create confusion about what assets are included in the sale, when payments are due, or how disputes should be resolved. Every term should be specific, accurate, and tailored to the transaction.
Ignoring Contingencies
Contingencies protect both parties by setting clear conditions that must be met before the deal closes. Failing to include financing, inspection, or due diligence contingencies can leave a buyer exposed to risk or force a seller to proceed with an unfavorable deal.
Skipping Due Diligence
Buyers who fail to conduct proper due diligence may uncover problems only after the transaction is complete. The PSA should provide enough time and access for a thorough review before closing.
Overlooking Termination Clauses
Without clear terms about what happens if the deal falls through, parties may face legal uncertainty or financial loss. The agreement should define what constitutes default, the remedies available, and the consequences of cancellation.
Failing to Allocate Closing Costs
Disputes often arise when the PSA fails to clarify who is responsible for closing fees, transfer taxes, or legal expenses. Assigning these costs in advance helps prevent last-minute surprises and negotiation breakdowns.
Learn How Bradshaw Legal Can Help
Purchase and sale agreements contain all of the important details of major transactions, and you could benefit substantially from relying on the support of legal counsel throughout this process. At Bradshaw Legal, we can assist with everything from drafting contracts to reviewing agreements on your behalf.
Let us help you protect you while you negotiate your next purchase and sail agreement. Contact us as soon as possible for a confidential consultation with our firm.