What Is a Sales and Purchase Agreement?
A Sale and Purchase Agreement or a purchase and sale agreement provides the foundation for facilitating the transaction to take place. It provides a framework within which the deal progresses. It lists out the inclusions in the transactions and also specifies the exclusions. It facilitates negotiations for price and brings both parties together. It provides a basic sketch of terms and conditions which may be negotiated upon in order to effect a successful transaction. A sale-purchase agreement is often used for real estate transactions and other such transactions that occur over a specified period of time.
Who Are the Parties to a Sale and Purchase Agreement?
In a standard purchase and sale agreement, there are only two parties to the agreement.
- The seller: It can be a single person or a parent company who sells a property owned by that entity.
- The buyer
What Is the Purpose of a Sale and Purchase Agreement?
Sale purchase agreement is created for the following purposes:
- Written terms and conditions for a sale and purchase transaction provide stability and assurance to the parties.
- It provides a framework within which the sale and purchase of the assets occur.
Contents of a Sale and Purchase Agreement
A purchase and sale agreement template consist of the following terms and conditions:
- Closing Price: The purchase and sale agreement typically contains the clause which reflects the closing price of the transaction. This clause would also contain the tax treatment of the closing price.
- Price Adjustments: The closing price, as opposed to its nomenclature, is not the final price which the parties agree upon. When the transaction actually takes place, then a number of circumstances may affect the closing price. A readjustment is generally done in order to settle the balance. This intent should ideally be captured in this clause.
- Assets: This agreement is essentially a sale of assets. What assets are being sold as part of this transaction need to be captured in the agreement. They could be both fixed as well as movable.
- Liabilities: An asset may have certain liabilities associated with it. Typically, a buyer should disclaim that he is not responsible for any of the liabilities that come with the asset. This statement should be subject to an exception that if any liabilities are expressly provided to as attaching to the buyer, and he has consented to the same in the agreement, then he can be held liable.
- Post-Closing, Provisions, Transfers, Fees: Any post-closing obligations such as costs or transfer fees, or registration fees, etc. need to be mentioned in the agreement at the outset.
How to Draft a Sale and Purchase Agreement?
An effective Sale purchase agreement/SPA agreement can be drafted using the following guidelines:
- Description of the property: The property or the goods to be sold need to be adequately defined in the agreement.
- Purchase price: Include the mode of payment, the quantum of the purchase price, and the payment schedule in the agreement.
- The current condition of the property, representations, and warranties confirming that the property is not subject to litigation or actually belongs to the seller should also be included.
- Delivery time: The agreement should outline when the property will be delivered and how it will be delivered.
- Typically a sales and purchase agreement should have rights and obligations of both the parties outlined.
Benefits and Drawbacks of a Sale and Purchase Agreement
The benefits are:
- Minimizes Risks: A sales contract helps to mitigate risk. By capturing terms and conditions adequately in a written form, it helps to reduce risk exposure.
- Clarity: A sale and purchase contract also provides clarity to both the buyer and the seller. They know how the transaction will progress and hence, are assured.
The drawbacks are:
- Time and Money: To include all the requisite clauses, ensure that the clauses are drafted properly, build in risk mitigation mechanisms, etc. would need a lot of time. Also, the costs of an attorney increase the expenses.
- A sale and purchase agreement, if not properly drafted, become a contentious issue. Disputes arise on the improper usage of words and phrases. Despite having written agreements in place, real estate is a sector where a number of litigation disputes are filed.
What Happens in Case of Violation?
The buyer/seller may seek breach-of-contract money damages when the other party fails to complete the sale. Upon default, the seller should return all the seed money or deposit that he may have collected from the buyer. The other party may also seek to force the erring party to complete the deal under specific performance. It is always advisable to register the sale agreement as it adds an extra measure of protection.
A sale and purchase agreement is an effective way of setting out exactly what both parties want. It ensures clarity between the two parties and also saves them from unnecessary legal disputes. Even if there are disputes, they can be solved effectively and mutually through the process of mediation.
Sample for sale and purchase agreement
A sale and purchase agreement sample can be downloaded from below.
Download this USA Agreement of Limited Partnership for only $9.99