Contingencies are basically escape hatches in a real estate contract. They let you walk away from the deal without penalty if certain conditions are not met.
Typically, when you sign a contract to buy a building, you should make your obligation to close (i.e. complete the transaction) contingent on certain conditions. Some common conditions on which contingencies are based include:
- Financing: A very common contingency is a subject to financing clause. Typically, you will agree to purchase the building on the condition that you are able to obtain a mortgage loan of at least 75% of the purchase price
- Inspector’s report: Being satisfied with a contractor’s inspection of the condition of the building
- Renovation possibilities: Your determination that the building can be renovated to your satisfaction (more common in commercial leases)
- Environmental hazards report: Your satisfaction with the building passing an environmental hazards report
An experienced real estate lawyer can help you put the right contingencies in the contract for your deal. Both residential and commercial real estate transactions can be complicated. Without the proper contingencies in your contract, you may agree to terms that will turn out to be disagreeable in the future. Retaining a lawyer will enable you to make sure that your interests are fully represented.