Before You Sign a Sale Agreement: What Should You Check?

A sale agreement is more than a document confirming that a buyer and seller have agreed on a price.

Once signed, it can create binding obligations between the parties. If important terms have been misunderstood, omitted or poorly drafted, resolving the resulting dispute can be far more difficult than addressing the issue before the agreement is signed.

This is particularly important in property transactions, where substantial sums of money are often involved and completion may require several legal and administrative steps.

Whether you are buying or selling property, the agreement deserves careful attention before you put your signature on it.

The Purchase Price Is Only One Part of the Agreement

Most buyers and sellers naturally focus on the purchase price.

That is understandable. However, the price is only one term among many that determine how the transaction will work.

The agreement should establish matters such as how and when payment will be made, the deposit required, the completion period, the documents to be provided and the obligations of each party.

A buyer may agree to purchase property for a particular amount but later discover that the agreement places unexpected obligations on them.

Similarly, a seller may agree to a transaction without properly understanding what happens if the buyer fails to complete.

The entire agreement therefore needs to be considered, not just the price.

Who Is Actually Selling the Property?

Before signing, the identity and authority of the seller should be established.

This may appear obvious where you are dealing directly with the registered owner, but some transactions involve companies, personal representatives, attorneys, trustees or other representatives.

The person negotiating the sale may not necessarily be the person with legal authority to transfer the property.

This is particularly important where someone is signing documents on behalf of another person.

The buyer should be satisfied that the person entering into the agreement has the necessary authority to do so.

Has the Property Been Properly Investigated?

The sale agreement should not be the first time the buyer investigates the property.

Before committing to the transaction, appropriate due diligence should be undertaken.

This can include confirming ownership and examining the property's official records for matters that could affect the transaction.

A property may be subject to a charge, caution, restriction or other interest.

Such matters do not necessarily make a sale impossible, but they may affect the transaction and should be addressed appropriately.

Signing first and investigating later can create unnecessary risk.

What Exactly Is Being Sold?

The agreement should clearly identify the property.

The description should correspond with the relevant property records and leave as little room for uncertainty as possible.

This becomes particularly important where the property is part of a larger parcel or where there may be questions concerning boundaries, developments or subdivisions.

A vague description can create problems when the parties later disagree about what was actually purchased.

The principle is simple: the property being sold should be clearly identifiable from the agreement and supporting documentation.

When Will Completion Take Place?

Completion is a critical stage in a property transaction.

The agreement should establish when the transaction is expected to be completed and what must happen before completion can take place.

For a buyer, this may involve paying the balance of the purchase price after the agreed completion requirements have been satisfied.

For a seller, it may involve providing the documents necessary to facilitate transfer.

A clearly defined completion process helps both parties understand their responsibilities and reduces uncertainty.

What Happens If the Buyer Cannot Complete?

A good sale agreement should not only describe what happens when everything goes according to plan.

It should also address what happens if something goes wrong.

For example, what happens if the buyer fails to pay the balance by the agreed date?

Is there a notice period?

Can the seller terminate the agreement?

What happens to the deposit?

Are there contractual consequences for the default?

These questions should be considered before the agreement is signed rather than after a dispute has already developed.

What Happens If the Seller Cannot Complete?

The same principle applies to the seller.

A buyer should understand what happens if the seller fails to provide the necessary documents, cannot transfer the property or otherwise fails to meet their obligations.

A transaction can become frustrating when a buyer has already arranged financing, paid a deposit and made plans to take possession, only for completion to be delayed because the seller has not satisfied an important requirement.

The agreement should therefore provide a clear framework for dealing with default.

Be Careful With the Deposit

The deposit is often one of the first significant payments made by the buyer.

Both parties should understand the purpose of the deposit and the circumstances in which it may be retained, refunded or otherwise dealt with.

A buyer should not assume that every deposit is automatically refundable if the transaction does not proceed.

Likewise, a seller should not assume that they can simply keep a deposit whenever a transaction fails.

The contractual terms and circumstances of the default matter.

This is one reason why the deposit provisions should be read carefully before signing.

Vacant Possession Should Be Addressed

Where a buyer expects to receive vacant possession, this should be clearly addressed.

A property may have tenants, occupants, caretakers or other persons using it.

If the buyer assumes that everyone will leave immediately after completion but the agreement does not properly address possession, problems can arise.

The parties should therefore establish who will be entitled to occupy the property and when possession is expected to be delivered.

This is particularly important where vacant possession is an essential part of the buyer's plans.

What About Existing Tenancies?

If the property is occupied by tenants, the transaction requires additional consideration.

The buyer should understand the nature of the tenancy and how the sale will affect it.

The seller should also disclose relevant information concerning the tenancy where appropriate.

A buyer who intends to occupy the property personally may have very different expectations from a buyer who intends to purchase an investment property with existing tenants.

The sale agreement should reflect the actual circumstances of the property.

Consider the Consequences of Default

A contract becomes particularly important when one party fails to perform.

Before signing, both parties should understand the consequences of default.

The agreement may provide for notices, termination, interest, damages or other contractual remedies depending on the circumstances and applicable law.

These provisions should not be treated as standard wording that nobody needs to read.

They can become some of the most important provisions in the entire agreement if the transaction goes wrong.

Do Not Sign Under Pressure

Property transactions can involve significant pressure.

A seller may say another buyer is ready to pay immediately.

A buyer may fear losing a property they have spent months searching for.

This pressure can lead people to sign documents before they have properly reviewed them.

Taking additional time to understand a legal document is not necessarily a sign that you are unwilling to proceed.

It is often a sign that you are taking the transaction seriously.

A genuine transaction should allow the parties to understand the agreement they are entering into.

Avoid Relying Entirely on Verbal Promises

A common source of disputes is the difference between what the parties discussed verbally and what eventually appears in the written agreement.

A seller may have promised to leave certain fixtures behind.

A buyer may have been told that a particular obligation would be handled by the seller.

Someone may have promised that completion would happen within a particular period.

If an important term matters to the transaction, it should be properly reflected in the contractual documentation.

Once a dispute arises, proving an informal verbal promise can be considerably more difficult than relying on a clear written term.

Should You Use a Standard Sale Agreement?

Standard forms can be useful starting points, but no two property transactions are necessarily identical.

A transaction involving vacant residential property may have different requirements from one involving commercial premises, agricultural land, leased property or property subject to financing.

A document copied from an earlier transaction may therefore contain provisions that do not properly address the current circumstances.

Legal drafting should reflect the actual transaction.

Why Independent Legal Advice Matters

In a property transaction, the interests of the buyer and seller are not always identical.

The seller wants to complete the sale on appropriate terms and receive the purchase price.

The buyer wants to acquire the property with confidence that the transaction has been properly structured.

Each party should therefore consider obtaining independent legal advice.

An advocate can review the transaction, identify potential risks, explain contractual provisions and ensure that the agreement properly reflects the client's interests.

The Agreement Should Be Understood Before It Is Signed

A contract should not be treated as something you sign first and ask questions about later.

Before signing, you should understand the essential obligations you are undertaking.

If there is a provision you do not understand, ask for an explanation.

If a term does not reflect what you agreed, raise it before signing.

If an important condition is missing, consider whether it should be included.

Once the agreement has been signed, changing the parties' contractual position may become significantly more difficult.

Conclusion

Buying or selling property is a major transaction, and the sale agreement is one of its most important documents.

The parties should understand who has authority to sell, what property is being transferred, how payment and completion will occur, what happens if either party defaults and when possession will be given.

Taking the time to address these matters before signing can prevent disputes that might otherwise become costly and time-consuming.

At G.K. Kimani & Associates Advocates, we assist clients with conveyancing, sale and purchase transactions, contract drafting and other property-related legal matters.

If you are about to sign a property sale agreement, having the document reviewed by an advocate before committing yourself can help identify risks and ensure that your interests are properly considered.

This article is intended for general informational purposes and does not constitute legal advice. The appropriate terms of a property transaction depend on the circumstances of the parties and the property involved. Professional legal advice should be obtained before signing a legally binding agreement.