Why Your Lawyer Should Be Involved in Drafting Commercial Sales Contracts

In commercial real estate and business sales, it is common for brokers or other parties to prepare the initial contract to expedite the deal. Many of these contracts rely on standard form agreements, such as those provided by the Real Estate Council of Alberta (RECA). While these templates are helpful in getting negotiations started, they often fail to address the complexities of commercial transactions, leaving parties exposed to significant risks.

Standard form contracts are designed to be broadly applicable, but they do not always reflect the unique circumstances of a transaction. One recurring issue involves clauses requiring the vendor to discharge all encumbrances on the property.

While this may seem like a reasonable requirement, in commercial transactions, certain encumbrances are integral to the continued operation of the business. Two examples of such encumbrances are utility caveats and fuel supply agreements.

A commercial property may have a caveat securing power infrastructure for an industrial operation. Releasing such an encumbrance could lead to significant disruptions, potentially requiring the business to renegotiate utility access or even relocate critical infrastructure.

Specific to commercial properties which include gas stations, businesses reliant on long-term fuel supply agreements often have caveats registered against the title. If a vendor agrees to remove all encumbrances without properly reviewing these registrations, the business may lose its access to essential fuel supply agreements, jeopardizing operations.

Having a lawyer involved in the contract drafting and review process helps ensure that legal obligations and business realities align. Here’s why legal oversight is crucial:

1. Tailored Contract Terms: A lawyer can modify or supplement standard form agreements to reflect the specific needs of the transaction, ensuring that critical encumbrances remain in place and that both parties are protected.

2. Risk Mitigation: Legal counsel can identify and mitigate risks that may not be obvious at first glance, such as financial liabilities, hidden obligations, or restrictions affecting the future use of the property.

3. Clear and Enforceable Terms: Many standard contracts use vague or overly broad language that can lead to disputes. A lawyer ensures that terms are precise and enforceable, reducing the risk of litigation down the road.

4. Regulatory and Compliance Considerations: Commercial transactions often involve zoning laws, environmental regulations, and other compliance requirements. A lawyer can verify that the contract aligns with these legal considerations.

While standard form agreements can be useful as a starting point, they are not a substitute for a properly drafted contract that reflects the specific details of a commercial transaction. Involving your lawyer from the outset ensures that your interests are protected, potential pitfalls are addressed, and your transaction proceeds smoothly without unexpected complications.

If you are considering a commercial sale or purchase, consult with any one of our experienced commercial lawyers to ensure that your contract serves your best interests from the start:

Arun Shourie: ashourie@sb-llp.com

Nitin Bhatia: nbhatia@sb-llp.com

Roshan Kalra: rkalra@sb-llp.com

Hasman Dhaliwal: hdhaliwal@sb-llp.com

*Disclaimer: This article provides legal information and is not intended nor to be construed to provide legal advice.