Commercial Purchase Agreement

A Commercial Purchase Agreement in the United States records the terms on which a buyer acquires the assets, fixing price, conditions and completion.

The National Association of Realtors (NAR) and various state real estate commissions publish standard form commercial purchase agreements that are commonly used as starting points for negotiation, but these forms are typically heavily modified by attorneys representing sophisticated commercial parties. In states including California, Texas, and New York, the commercial real estate bar has developed state-specific standard form PSAs through industry organizations — the California Association of Realtors (CAR) Commercial Purchase Agreement, the Texas Real Estate Commission (TREC) Commercial Contract forms, and the Real Estate Board of New York (REBNY) standard forms.

Commercial purchase agreements differ from residential purchase agreements in several legally significant respects. Commercial transactions involve no mandatory seller disclosure requirements in many states — unlike residential transactions where state statutes such as California Civil Code § 1102 and New York RPL § 462 require sellers to disclose known material defects to residential buyers — though the general duty not to fraudulently misrepresent material facts applies equally in commercial transactions. Commercial buyers are expected to conduct extensive due diligence and rely on their own investigation rather than on seller representations, leading to the common practice of as-is sales in commercial transactions.

The transfer of commercial real property requires execution and delivery of a deed — typically a special warranty deed (also called a limited warranty deed or covenant deed in some states) in commercial transactions, under which the seller warrants title only against claims arising through the seller's own acts, rather than a general warranty deed (which warrants against all prior claims). Recording of the deed in the county recorder's or register of deeds' office is required to give constructive notice to the world of the buyer's ownership and to establish priority against subsequent purchasers under the applicable state recording act.

Environmental due diligence is a critical and legally distinct component of commercial real estate transactions. The Complete Environmental Response, Compensation, and Liability Act (CERCLA, 42 U.S.C. § 9601 et seq.) — commonly known as Superfund — imposes joint and several liability on current property owners for environmental cleanup costs regardless of whether they caused the contamination. A buyer who purchases commercial property without conducting a Phase I Environmental Site Assessment (ESA) compliant with ASTM Standard E1527-21 cannot claim the Bona Fide Prospective Purchaser (BFPP) defense under CERCLA § 107(r) and may be held liable for pre-existing contamination.

A US Commercial Purchase Agreement is needed whenever a buyer and seller have agreed in principle to the acquisition of commercial real property and wish to document the terms of the transaction in a legally binding contract before closing.

Office building acquisitions by real estate investment trusts (REITs), private equity real estate funds, and owner-occupants in major markets including New York, Los Angeles, Chicago, and Dallas require highly negotiated PSAs addressing complex title issues, tenant lease assignments, environmental representations, and financing contingencies. The PSA establishes the buyer's due diligence rights and the conditions to closing that must be satisfied before the buyer is obligated to proceed.

Retail property acquisitions — including shopping centers anchored by national retail tenants, strip malls, and single-tenant net-leased properties — require PSAs that include detailed provisions for the review and assignment of existing tenant leases, estoppel certificates from tenants confirming the status of their leases, and subordination, non-disturbance, and attornment (SNDA) agreements from tenants whose leases may be senior to the buyer's mortgage.

Industrial and warehouse facility acquisitions — increasingly important in the e-commerce-driven logistics sector, with high demand in markets including the Inland Empire in California, the Dallas-Fort Worth metroplex, and central New Jersey — require PSAs that address specialized environmental representations regarding hazardous materials storage, industrial floor loading specifications, truck court dimensions, and power infrastructure.

Multifamily apartment complex acquisitions (five or more units) in high-rent markets such as San Francisco, Seattle, and Boston require PSAs addressing the assignment of tenant leases, security deposit accounts, any applicable rent control ordinances under local law, and representations about pending regulatory actions by housing authorities.

Ground lease and land sale transactions — where a buyer purchases raw land for development — require a PSA that addresses the buyer's right to conduct due diligence on zoning, entitlement status, utility availability, and environmental conditions, and that includes a development feasibility contingency allowing the buyer to terminate if the land cannot be entitled for the buyer's intended use.

A complete US Commercial Purchase Agreement contains the following essential provisions, each addressing a specific legal or commercial dimension of the transaction.

The property description clause identifies the real property being sold with legal precision: the street address, the legal description (lot and block number from the subdivision plat, or metes and bounds description from the recorded deed), the tax parcel identification number, and a description of any personal property, fixtures, and equipment included in the sale. For properties with multiple parcels or complex title configurations, each parcel should be separately identified.

The purchase price and payment terms clause specifies the total purchase price, the amount and due date of the earnest money deposit, the name of the escrow agent holding the deposit, the conditions under which the deposit is refundable, and the financing assumptions (all-cash close, or subject to the buyer obtaining specified financing on specified terms within a specified period).

The due diligence period clause establishes the buyer's right to investigate the property — its physical condition, title, environmental status, tenant leases, financial performance, and regulatory compliance — for a specified period after the effective date (typically 30 to 60 days in commercial transactions). During the due diligence period, the buyer may terminate the agreement for any reason or no reason and recover the earnest money deposit in full. After the due diligence period, the deposit becomes hard (non-refundable) except in the case of seller default or specific title defects.

The title and survey provisions require the seller to deliver title to the property free and clear of all liens, encumbrances, and exceptions other than those specifically permitted in the agreement (permitted exceptions typically include current-year real property taxes not yet due, existing tenant leases, and recorded easements). The buyer obtains a title commitment from a title insurance company (such as First American Title, Fidelity National Title, or Old Republic National Title) and a current survey, and raises objections to any title exceptions or survey matters that are not acceptable within the due diligence period.

The environmental provisions require the seller to represent its knowledge of any environmental conditions, permits, violations, or pending regulatory actions involving the property, and the buyer to conduct a Phase I Environmental Site Assessment per ASTM E1527-21 as the minimum standard for the BFPP defense under CERCLA. If a Phase I identifies recognized environmental conditions (RECs), a Phase II investigation involving soil and groundwater sampling may be required.

The representations and warranties clause contains the seller's statements about the property, its title, the status of tenant leases, the absence of pending litigation, compliance with laws, and the accuracy of financial information provided to the buyer. Commercial sellers negotiate for limited representations made only to the seller's actual knowledge without independent investigation, and typically seek a survival period of six to twelve months after closing.

The closing conditions clause specifies what must happen before either party is obligated to close — the buyer must deliver the purchase price; the seller must deliver the deed, bill of sale, lease assignments, and other closing documents; title insurance must be available on agreed terms; and any required third-party consents must be obtained. The closing structure and mechanics — wire transfer, escrow closing, proration of rent and taxes as of the closing date — should be described in detail.