,
SEE-SAW MARKET
SELLER REPRESENTATIONS
AND WARRANTIES
Other than informing buyers of their
organizational makeup and their authority to enter into a particular transaction,
sellers have typically not made any meaningful representations concerning the
property or its history. Sellers have been
successful in refusing to make worthwhile
representations while, at the same time,
limiting diligence for buyers. In this changing marketplace, there will be greater
push back on sellers to make certain
representations and warranties.
Representations from sellers concerning matters that buyers cannot adequately examine through diligence may over
time come to the forefront of negotiations
between buyers and sellers. Although
buyers may not be able to obtain unqualified representations from sellers, buyers
may now be able to negotiate for representations concerning information known
to the seller. In addition, because buyers
do not want to inherit litigation when
purchasing real estate, buyers could ask
that sellers identify all litigation proceedings involving the property or actions
that may lead to future litigation. Lastly,
buyers should consider that no matter
how successful buyers are in receiving
representations from sellers, without a
survival period such representations may
be meaningless. But, getting such a survival period will continue to be a tough
negotiation between buyers and sellers.
REMEDIES
A real estate contract is essentially nonbinding when a buyer’s remedies, due
to a seller’s default, do not provide for
specific performance. Because liquidated
damages do not adequately remedy
buyers who, at the conclusion of the
transaction, want to own the property,
specific performance is the only remedy
capable of putting the buyer back in the
position the buyer would have been in but
for the seller default. Furthermore, anything
other than specific performance would
make it too enticing for sellers to walk away
from a binding contract in order to sell the
property at a higher price even after the
payment of liquidated damages to the first
buyer. In today’s real estate market, this may
not be an issue, so buyers should be able
to negotiate specific performance. In the
absence of such a provision, buyers may
want to pay attention to the liquidated
damages figure to create a deterrent for
sellers from backing out of contracts for
higher purchase prices.
CONCLUSION
In this ever-changing real estate marketplace, sellers may no longer have the luxury of dictating one-sided, seller-friendly
purchase agreements. Instead, as the pendulum swings to its nadir, savvy buyers
will now have more ability to maximize
value and obtain certainty through
negotiating more balanced real estate
purchase agreements.
Andrew Kirsh is an associate
in the Los Angeles office of
Goodwin Procter and can
be reached at (310) 788-5133
or akirsh@goodwinprocter.com.
REsource Spring2008
