What Should I Look for When Reviewing a Purchase & Sale Agreement?

A Purchase & Sale Agreement (PSA) is one of the most important documents in a commercial real estate transaction. Once signed, it becomes a legally binding contract that governs the entire deal—from due diligence through closing.

Whether you’re buying or selling, understanding what to look for when reviewing a PSA can help you avoid costly surprises, protect your interests, and ensure the transaction stays on track.

Below are the key sections buyers and sellers should carefully review before signing.

1. Purchase Price & Earnest Money

Confirm that the PSA clearly outlines:

• The agreed-upon purchase price

• The earnest money deposit amount

• When the deposit is due

• When (and if) the deposit becomes non-refundable

Earnest money terms are especially important, as they define the buyer’s financial risk if the deal does not move forward.

2. Due Diligence Period & Contingencies

The due diligence section defines the buyer’s right to investigate the property.

Key items to review include:

• Length of the due diligence period

• Buyer’s right to terminate during this period

• Access to property, documents, and financials

• Required notices to waive or extend contingencies

For buyers, this protects your ability to walk away if issues arise. For sellers, it defines how long the property is tied up before the deal becomes firm.

3. Financing Contingencies (If Applicable)

If the buyer is obtaining financing, the PSA should clearly state:

• Whether financing is required to close

• Deadlines for loan approval

• What happens if financing is denied

Sellers should pay close attention to financing contingencies, as they can introduce uncertainty or delays if not structured carefully.

4. Representations & Warranties

Representations and warranties are statements made by both parties regarding the condition of the property and the authority to complete the transaction.

Common seller representations include:

• Ownership and authority to sell

• Accuracy of financial statements

• Lease validity and tenant status

• Absence of undisclosed legal issues

Buyers should ensure these representations are comprehensive, while sellers should confirm they are accurate and appropriately limited.

5. Title, Survey & Environmental Provisions

The PSA outlines:

• Who orders and pays for title insurance

• Survey requirements

• How title objections are handled

• Environmental report requirements

These sections define how potential issues—such as easements, encroachments, or environmental concerns—are identified and resolved prior to closing.

6. Closing Timeline & Prorations

Review the closing section for:

• Target closing date

• Conditions required before closing

• Prorations for taxes, rents, utilities, and CAM charges

• Responsibility for closing costs and fees

Clear timelines help prevent delays and ensure all parties are aligned as the transaction moves toward closing.

7. Default & Remedies

This section explains what happens if either party fails to perform.

Key considerations include:

• Buyer default consequences (loss of earnest money, legal remedies)

• Seller default remedies (return of deposit, damages, or specific performance)

• Notice and cure periods

Understanding default provisions helps both parties assess risk before committing.

8. Assignment, Estoppels & Post-Closing Obligations

Depending on the deal, the PSA may address:

• Buyer’s right to assign the contract

• Tenant estoppel requirements

• Post-closing obligations or survival periods

These provisions can significantly impact deal structure and long-term responsibilities.

A Purchase & Sale Agreement does far more than confirm price—it defines the rules, risks, and responsibilities of the entire transaction. Buyers and sellers should review each section carefully and work with experienced professionals to ensure the agreement aligns with their goals.

Partnering with a knowledgeable commercial real estate broker and legal counsel helps identify potential issues early, negotiate favorable terms, and move confidently toward closing.

Written by LevRose CRE with assistance from: LevRoseCRE.(2024)

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