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Commercial Real Estate - Contracts and Closings
Contingencies

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Contingencies

Contingencies, in commercial real estate, refer to conditions in a contract. Unless the conditions (contingencies) are met, the contact is cancelled and there is no penalty. While a contract does not need to have any contingencies, it is extremely rare to find a contract without any. Generally speaking, contingencies can be divided into two types. Suspensive conditions suspend a contract until a particular event takes place. Resolutive conditions void a contract if particular events do take place. More specifically, contingencies can be divided into five general descriptive categories: -Mortgage Contingencies: The contract depends on the buyer getting a mortgage loan in order to purchase. The contract usually specifies a period of time in which the buyer must apply for the loan. These are the most common type of contingencies, because almost all buyers need a mortgage to finance their purchase. -Inspection Contingencies: The contract depends upon the results of an inspection. That is, no significant defects can be revealed or certain flaws must be repaired in order for the contract to be valid. -Sale Contingencies: The contract depends upon the sale or purchase of a different property. For example, this could be the case if the sale of one property was needed to fund the purchase of another. -Appraisal Contingencies: The contract depends upon an appraisal of the property value. If the contract price is equal to or less than the fair market value determined by the appraisal, the condition is met. -72 Hour Contingencies: This contingency is established by the seller. The contract usually includes a sale contingency set by the buyer (he or she will purchase the property if a different property is sold). The seller affirms the contract, but retains the right to sell the property to a different buyer, after giving the initial buyer 72 hours notice. There are then two possible outcomes. The buyer can remove the sale contingency, supplying evidence that he or she can fulfill the contract and complete the sale. If the buyer cannot complete the sale, the seller is released from the initial contract and can carry out a new contract with the new buyer.
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Commercial Real Estate Resource Center

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