Seller terminating a commercial purchase/sale agreement

10 Replies

I executed a PSA to sell a commercial property a week ago (sale price of $3.4m).  I'm considering terminating the sale (the property I was going to roll into fell through, among other misgivings about the sale).  The PSA specifies in the event of seller termination, the buyer can pursue specific performance or pursue damages for costs incurred.  A buyer pursuing and getting specific performance is unlikely, according to my atty.  Damages for costs incurred at this point would seem to be costs attendant to due diligence site visits and possibly atty costs (for the PSA negotiation and probably also for whatever time their atty spends on the termination).  Anybody terminated a deal after PSA execution before?  What was your experience?

@Christopher Brown I had to situations in my career both in NC where the sellers tried to back out of the contract unilaterally and for no reason. I sued for specific performance and won both times. Unanimous jury decision on the first one summary judgment on the second. These were very large deals with millions at stake.

The best thing to do is try to resolve this with the buyer and see if they would be willing to allow you to cancel. If not you have to give them an opportunity to close as per the contract.

RE includes relationships.  this is where deals are often sourced and consummated.

I think you need to try to work this out with the buyer for a certain compensation.  This is not only because it lets you know up front what the cost is to back out but also because it is just bush to back out for no reason.

I know if I was the buyer and you backed out without negotiating the back out, I would find anything and everything to put into my costs.  This would include hiring the best (most expensive) attorney available.

Good luck

@Christopher Brown .

Interesting question. I had a deal I was buying in which the seller agreed to do certain repairs, with specific criteria as to what constituted adequate repairs. He tried to cheap it and the repairs didn’t pass our agreed to inspection criteria, at which point he told his real estate broker that he was going to terminate the contract and sell it to someone else(he had a backup contract). I filed a lis pendens on the property alerting the public that I was going to file a suit for specific performance. The seller contacted me enraged at my “behavior”. When he found out I wasn’t backing down, he offered to pay me $5000 to go away. I told him I’d think about it for $100,000. His attorney then contacted my attorney to work out the details of the repairs he was now willing to do. I purchased the property as agreed.

@Christopher Brown
A buyer pursuing and getting specific performance is unlikely, according to my atty

In the SFH world yes a lot of buyers wouldn't go to the trouble but you are talking about a substantial deal. Perhaps your best option is to bluff and if you get serious push back then simply back down and go through with the deal.

So what if you balk and the buyers does nothing? You have a real mess. That buyer can come back any time up to the statute of limitations and cause a problem. You wold have to get a release.  You won't get away with that with a serious experienced investor.

i hope your buyer isn't @Don Konipol LOL

Originally posted by @Christopher Brown :

I executed a PSA to sell a commercial property a week ago (sale price of $3.4m).  I'm considering terminating the sale (the property I was going to roll into fell through, among other misgivings about the sale).  The PSA specifies in the event of seller termination, the buyer can pursue specific performance or pursue damages for costs incurred.  A buyer pursuing and getting specific performance is unlikely, according to my atty.  Damages for costs incurred at this point would seem to be costs attendant to due diligence site visits and possibly atty costs (for the PSA negotiation and probably also for whatever time their atty spends on the termination).  Anybody terminated a deal after PSA execution before?  What was your experience?

Just to clarify, you mean Seller breach, not termination? If you're terminating, its a lawful power. If its a breach, then not.

 

@Christopher Brown The buyers can have very significant cost involved. We are in a deal, and our buyers have shown us their investment to let us know how serious they are, it is a 12 month escrow and they do it to give us confidence. Just after 30 days they had $300k and 6 months in, over $500k. That is beside the non-refundable deposits, and the good faith deposit. Make sure to be clear what they have invested, I know our contract gives us very little room to back out

If this is the buyer you had mentioned they are a very large company. They might force the sale or say to pay their costs up to that point and call it a day.

You need a legal opinion from your attorney. It's all in how the contract reads. Something as small as ONE word can change the outcome and options for everything. This is why attorneys fight so hard when crafting PSA's in word doc form on commercial deals.

As far as costs there can also be (opportunity cost) for the buyer meaning they put time and assets into purchasing your property over others and if you breach they can be damaged.

No legal advice given. 

Thanks all.  Lots of great feedback here and I appreciate it.  I agree that if we decided we didn't want to proceed with the deal, approaching the buyer about negotiating a break fee would be the right first step.  I'll post more if I have any developments.

I appreciate all the advice from the posters here in response to my question a couple of months ago.  I did end up asking the buyer (through my broker) if they would be willing to let me out of the deal, and they said no.  They said if I had asked earlier we probably could have worked something out but we were far enough along that they were going to have trouble completing their 1031 if I bailed.  With that info and some of the perspective from this thread, I went through with the sale and we closed last month.  I still have some seller's remorse; I've got my 1031 wheels in motion and we'll see how the new deal turns out...

Thanks again.