The language or terminology of commercial real estate contracts is different in many ways from what you may be used to seeing in a residential agreement. Some of these terms are listed below. You should familiarize yourself with these terms, what they mean, and how and why they are used in a commercial real estate contract.

• Representations and Warranties

In a residential closing, everyone buys home insurance because the seller’s representations and warranties expire at closing, unless you insist that they not. These are the facts of the property that the Seller alleges in the sale, such as a solid roof or that no illegal action, including legal cases, is threatened against the property. Always include a representations and warranties clause in your contract that the seller must abide by even after closing.

Although most commercial sellers do not guarantee the roof, they do sometimes guarantee the structure. For example, they might say that even though there are cracks in a certain wall, tests were done. They would give you a copy of that test and agree to stand behind the safety of the wall. Any guarantees Seller makes to you must survive closing.

• Commercial closings

The close, like the inspection period, is based on a formula. It starts at the end of the inspection period, so it’s like a moving window.

• runners

Your contract should contain language about any brokerage involved. If this inclusion does not apply, each of you wants to hold the other harmless. This protects both Buyer and Seller if a finder’s fee suddenly appears or a broker shows up at closing, making unexpected claims.

If any broker is involved in the deal, the contract must include the name of each broker and indicate the method of payment. Often they can be paid based on a separate agreement between Seller and Broker.

Key point: Many people write contracts for themselves without middleman language. Even if the broker clause doesn’t apply, include the broker’s language in your contract.

• Assignment of a contract

Many contracts will not have assignability checked or will not include any assignability. If there is a specific paragraph that says that the Buyer can assign the contract, the Buyer is free to assign it. However, if the signed contract does not have an assignment clause, then it is assignable. You do not have to include a release clause. Tip: To be safe, always include the assign clause and specify whether it can be assigned.

These were some additional terms of the commercial real estate contract, I felt it was important to list them in addition to the list I provided in another previously posted article. If you like what you read or learned here, be sure to check out the other article for a continuation on commercial real estate contract language and how to use or interpret these elements as you move into the business realm of investing.