Role of Attorney-Pre-Contract

ROLE OF YOUR ATTORNEY-PRE-CONTRACT
BY
MICHAEL J. LOMBARDO, ESQ.

The one document in real estate transactions that sets the parameters of the rights and obligations of the seller and purchaser is the contract. An attorney can, and often does, play an important role in negotiating and finalizing contracts and agreements in real estate transactions, whether representing a purchaser or seller. However, it is not only the contract between the seller and purchaser that your attorney should be reviewing. Other contracts or agreements, such as the listing agreement and Property Condition Disclosure Statement, should be reviewed and discussed with an attorney before being finalized.

Some of the issues an attorney should be examining and discussing include the following:

1. Listing Agreement. A listing agreement should be reviewed by an attorney before it is signed. Some issues which need to be addressed in a listing agreement include:

a. Can the seller negotiate directly with an interested person?

b. Commissions and Other Fees.

i. Does the seller have to pay a commission if the property is sold to someone who expressed an interest before the property was listed?

ii. When is the commission due when a buyer is found?

iii. What is owed to the broker if the seller decides to remove the property from the market?

iv. Does the seller have to pay any fees to the broker other than a commission?

2. Property Condition Disclosure Statement (“PCDS”). The requirement to provide a PCDS depends on the type of property involved (see the article on the Property Condition Disclosure Statements for more information). If the PCDS is required to be provided by the seller, the seller's attorney should examine the PCDS before it is finalized and submitted to the purchaser. The seller's attorney may be able to make recommendations on how the form should be completed. The purchaser's attorney should examine the PCDS for potential issues that the purchaser may want addressed in the contract.

3. Contract. The attorney, no matter which party is represented, should examine the contract and may offer some suggested changes. Therefore, it is important for an attorney to have an understanding of the transaction, and what is expected by both parties. A number of issues could be important to either the seller or purchaser, or both, which require special provisions to be added to, or in modification of, any contract, including:

a. Rent Adjustments. If a tenant owes back rent, how does it get collected? Must the tenant be evicted before closing?

b. Seller Financing. Will the seller be holding a mortgage for part of the purchase price? If so,

i. Must the purchaser provide financial statements for the seller’s approval, and if so, when? What documents is the purchaser required to provide, and what determines if they are satisfactory?

ii. Are the terms and form of the mortgage to be different than the standard Bar Association Form, and if so, when will they be negotiated?

ii. Is the seller’s mortgage going to be subordinate to a bank mortgage? If so, what are the consequences?

c. Pre-Closing Contingencies. Are there any special conditions which if not satisfied enable either the seller or purchaser would wish to cancel the contract (e.g. sell or purchase another property)? If so, are these adequately spelled out in the contract?

d. Closing date. Either party may have special circumstances requiring close attention to the closing date stated in the contract (e.g. the seller already has a contract to buy another property and must close the sale first).

e. Condition Of Property and Pre-Closing Work.

i. Did the parties agree that the purchaser will accept the property in a condition other than that provided for in the standard contract?

ii. If the contract provides for work to be done before closing, is it clear as to what work needs to be done, who has to do the work, and who will bear the cost? How is the seller protected if the purchaser does not pay for the work, and the sale does not close?

iii. What can the purchaser do if the purchaser intends to modify the use of the property but discovers before closing it cannot be done legally or cost effectively?

f. Property Used In A Business. Was the property previously used in a business by the seller? There are special tax problems which need to be addressed.

Next-Role of Attorney In Contract Administration.

CAUTION: THIS ARTICLE IS INTENDED TO PRESENT GENERAL INFORMATION AND IS NOT INTENDED TO BE A SUBSTITUTE FOR CONSULTATION WITH LEGAL COUNSEL.

Last Update: March 28, 2011

ROLE OF YOUR ATTORNEY-PRE-CONTRACT BY MICHAEL J. LOMBARDO, ESQ.

ROLE OF YOUR ATTORNEY-PRE-CONTRACT
BY
MICHAEL J. LOMBARDO, ESQ.