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THE AGREEMENT OF PURCHASE AND SALE: Not Just Used In Real Estate!

An agreement of purchase and sale is a major key document in negotiating to buy and sell an asset. This is an agreement between the seller and the purchaser. It is legally made to deal with the transfer of the asset with regard to its purchase value, payment arrangements, warranties of the seller, representations on the asset, terms of how the transaction is to take place, conditions precedent to firming the deal, and conditions subsequent as to who is to do what after the deal has closed. The transfer of assets includes the tangible, like the equipment and stock, and the intangible assets, such as the goodwill, current clients, and contracts. Intangible assets also include the intellectual property, such as copyrights, patents, and trademarks.  However, it is advisable not to include too much intellectual property as it can be very difficult to determine an agreeable value.  Rather, intellectual property is often licensed – allowing for the licensee to justify the commitment over a period of time while recognizing the value associated with the intellectual property; a concept that is easier to accept.

The agreement also specifies and usually starts with an irrevocable offer of specified time preventing the seller from engaging in a similar agreement, or alternatively requiring the purchaser to accept or counter offer within that specified time.  Some irrevocables may even require the purchaser to abstain from operating a similar kind of business until the agreed upon time of completion.

The agreement of purchase and sale of an asset consists of the subject matter, purchase price, terms of payment, conditions, representations, and warranties, risks, sales taxes, non-competition clauses, bulk sales terms or representations, closing documents, closing date, miscellaneous, and acceptance.  To give the agreement the necessary value and bond, a deposit is often provided towards the total consideration to be paid once the deal closes or thereafter. To the purchaser; the deposit is the amount of money that the purchaser  is willing to give in case the purchaser chooses to default on the agreement. This can be given in the form of a personal check or promissory note. To the seller; the deposit represents the purchaser’s sincere intention and assurance to purchase the asset.

The agreement also includes an Offer Expiration Date which is the period until which the offer of the seller is still valid.  This safeguards the purchaser from future obligations regarding the offer and allows the purchaser to have a chance to look for another prospect asset to purchase. Nevertheless, if the seller provides a counter offer after the expiration date, the purchaser has the option to accept the counter offer for a new date.

The Closing Date refers to the date when all the due diligence and conditions subsequent are completed or time has run out to do so, and all terms are ready to be met and closed on.  Ownership/title usually transferrs at this point. The Possession Date (also known as the Occupancy Date) is when the purchaser physically gets the asset or obtains control over it (such as the keys).  The possession date usually coincides with the closing date, but may be before or after.

A well negotiated agreement of purchase and sale is designed not to be biased, for it favors and benefits both the purchaser and seller.  The biggest mistake a purchaser or seller can do is to not retain a lawyer to assist in the agreement of purchase and sale and negotiate the deal and terms of closing.  Contact Levy Zavet PC the next time you are in the market to buy or sell.

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