"How To Draft A Purchase & Sales Agreement"
What is a Sales and Purchase Agreement?
A purchase and sales agreement is used for advanced sales transactions, such as those involving business assets or real estate. They're different from bills of sale, as certain conditions must be met before the sale is finalized. Purchase and sales agreements can be called different names, depending on the transaction and which state it takes place in. They're all in-depth contracts that define the terms and conditions of a financial purpose.
There is detailed buyer and seller information in purchase and sales agreements, including names, phone numbers, addresses, and co-signers if applicable. The agreement also lists the following:
- Type of sale.
- Dates of the agreement.
-If a deposit was paid.
-Dates when the rest of the contract will be complete.
-Date of contract's final closing and ownership transfer.
These agreements are often considered "living" since they're subject to revisions often.
Detailed property descriptions are also included, including any defects or deficits that are known when the agreement is created. There may be language in the agreement that lets the buyer hire professionals to inspect the property if they wish. Further language can state that if the expectations aren't met by the buyer after the inspection or there are defects found that weren't expressed by the seller, the buyer can end the contract.
What Buyers and Sellers Should Know
There are times when many forms and paperwork will need to be filled out, such as when buying a home. One of the essential documents signed by sellers and buyers is the purchase and sales agreement, also known as the purchase agreement. The agreement defines the terms and conditions of buying the home and sets the transaction's timeline. Both sellers and buyers should read this document carefully so they understand what the terms are before they sign it. The closing date and purchase price are included in the agreement, which are crucial items in a real estate purchase.
How much money the buyer puts down for the deposit is also known as the earnest money. The rules of this are laid out in the agreement, and this money should be put in an escrow account until settlement occurs. The parties in the transaction may want to include items that come with the purchase of the house, such as window treatments and appliances. Items that aren't expressed, such as a washer and dryer, can also be stated by the person selling the property.
The contingencies of and commitment to the home purchase should also be stated by the seller. There are certain contingencies that can be stipulated to release the buyer from purchasing the home and allowing the deposit to be returned. For example, if the buyer's current home doesn't sell, he doesn't have to purchase the new home.
There is also a mortgage contingency clause for cases where buyers are not able to finish a home purchase until they are approved for a mortgage. This means buying the home is contingent on loan approval. The home must also be appraised at a specific value in order for a person to qualify for a mortgage.
There are essentially four types of real estate contracts: purchase agreement contract, contract for deed, lease agreements and a power of attorney contract. They each have their different uses and stipulations.
Items Included in the Purchase and Sale Agreement
Parties Involved
When drafting a contract, it’s important to correctly list the parties involved to avoid confusion or allow one party to escape from the contract. List the seller and buyer by full name and address, as well as any business affiliation. For example, write, “The following is a contract between Joseph A. Smith, of Smith & Associates, LLC, 123 Main St., Anytown GA, 30066, and Deborah L. Jones, of Deb’s Floral Shop, 222 S. 50th St., Springfield, MA 00233.” When signing the contract, the signatories should use their titles after their names to protect them from a lawsuit. For example, use “Joseph A. Smith, Owner, Smith & Associates, LLC.” Include the names of all parties involved, including partners of the buyer and seller who may hold an interest in either business.
Sale Items
List the items that will be included in the sale. This would include all physical assets, business records, cash, name of the business, logos, goodwill, licenses, patents, royalties, trademarks, recipes, trade secrets, formulas, databases, inventory and any other items the company used to conduct business. If possible, list the assets by item and count. For example, if you are selling a restaurant, include the number of tables and chairs, ovens, refrigerators and other items a seller might try to take before he leaves. Include liabilities such as loans or other debt, including accounts payable. Include any non-compete clauses that go with the sale in this section to prevent the seller from competing with you after you buy the business.
Disclosure
Include a disclosure agreement that requires both parties to state they have disclosed any legal obligations, debts, lawsuits, fines or other encumbrances. This will make the seller responsible for any undisclosed liabilities the buyer discovers after the sale, or protect a seller who is financing a sale from a buyer with undisclosed bad credit or partners. Include a statement from the buyer and seller that each is legally the owner of the business they are representing and allowed to make the purchase or sale.
Sales Terms
Include the terms of sale, including how payment will be made and the date or dates of any payment. This would include whether the payment will be made in installments; if the payments will be made by cash, check, credit card or electronic transfer; if the seller will finance all or part of the sale and at what interest rate; if a deposit is required; and other details involved with the payment process. List any brokers or agents involved in the sale, as well as any financial companies facilitating the transaction. Add a clause detailing where and how disputes will be adjudicated. For example, include the state where any lawsuit must be brought and/or whether you wish disagreements to be handled by an arbitrator.
Signing
Require all parties involved in the sale to sign and date the document. Once you've drafted your contract, have an attorney review it before anyone signs it. Tell them to sign with their full names and titles. Have each party provide a witness signature. Have each signatory sign multiple copies so both parties can have an original copy. Have the documents notarized by a notary public.
Bottom Line
Small business owners can get into trouble buying or selling a business as much for what’s not in the contract as for what is. Leaving important items out of a contract, including hard and intangible assets and liabilities, can cause problems months after the sale goes through. Payment terms are another critical aspect of a contract. When you draft a contract for the sale of a business, make sure both parties know exactly what they are getting at the time of signing, as well as in the future.