WHAT SHOULD A SELLER CONSIDER WHEN THE BUYER WANTS TO HAVE THE RIGHT TO ASSIGN THE CONTRACT?

By
Real Estate Broker/Owner with LeGrand Brokerage

From KW Commercial SA's www.kwcommercialsa.com "ask the expert" page.  Under Doug Becker's Real Estate Law Page.  http://kwcommercialsa.com/blog/?category_name=douglas-w-beckers-real-estate-law-blog-page under the topic of WHAT SHOULD A SELLER CONSIDER WHEN THE BUYER WANTS TO HAVE THE RIGHT TO ASSIGN THE CONTRACT? http://kwcommercialsa.com/blog/?p=541

WHAT SHOULD A SELLER CONSIDER WHEN THE BUYER WANTS TO HAVE THE RIGHT TO ASSIGN THE CONTRACT?

[Douglas W. Becker at 2011-3-21 in: Doug Becker's Real Estate Law Page]

DOUGLAS W. BECKER

COMMERCIAL ESCROW MANAGER AND UNDERWRITING COUNSEL

CHICAGO TITLE INSURANCE CO.

270 N. LOOP 1604, E.

SAN ANTONIO, TX. 78232

210-482-3560

DOUG.BECKER@CTT.COM

 

March 21, 2011

Issue:  Quite often during the negotiation of a commercial real estate contract the buyer will request the right to assign the contract to a new entity.  Should the seller resist?

Discussion:  In representing the buyer, it is important to retain the right to assign the contract, especially under circumstances where the entity which will ultimately acquire the property has not yet been formed.  It is preferable to make clear that the buyer will have the right to assign the contract by an express provision approving assignment or by describing the buyer as "John Doe, and/or Assigns".  Where there is a significant amount of earnest money, and the purchase price is to be paid in cash at closing, the seller should not have any real objection to allowing an assignment by the buyer, absent some special circumstance, such as restrictive use covenants affecting the property or concerns over mix of uses in a retail development. 

On the other hand, if the contract requires certain activities by the buyer prior to closing, which activities involve significant financial outlays, such as zoning or platting, the seller will want to have some assurance that the buying entity and the entity to whom the contract is to be assigned have the financial wherewithal to complete the buyer's obligations.

Moreover, under circumstances where the purchase price is to be financed by the seller, the seller has a legitimate interest in determining the creditworthiness of the entity to which the contract is to be assigned.  A compromise solution is to provide that the contract can be assigned by the buyer to an entity with which the buyer is affiliated in a significant way, i.e., such as an entity in which the buyer is a majority owner or which the buyer controls by being the general partner.  In addition, as a condition to allowing an assignment of the contract, the seller might require that the original buyer guarantee performance by the entity to which the buyer desires to assign the contract.

Doug Becker

Doug Becker

Douglas W. Becker
Commercial Escrow Manager and Underwriting Counsel
Chicago Title Insurance Co.
270 N. Loop 1604 E., Suite 115
San Antonio, Tx. 78232
Tel. 210-482-3560
Fax 210-482-3564
Cell 210-482-3560
Email doug.becker@ctt.com

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Rainer
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Ann Bellamy
Hard money lending for investors in NH and MA - Tyngsboro, MA

Thanks for the excellent post, Link.  Many residential agents think assignments are automatically scams.

March 21, 2011 07:53 AM #1
Rainmaker
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Link LeGrand
LeGrand Brokerage - San Antonio, TX
CCIM, LeGrand Brokerage + Making Champions LLC

My momma www.legrandrealtors.com would probably 2nd that thought.  I would probably agree that in "most" instances that it doesn't make much sense in residential real estate unless you are dealing with an investment property or a high net worth individual.  That being said, I always recomend to fully understand the buyer's reasons "why" before making any decisions.   Doug Becker is on the best resources for advise on all forms of real estate law.  Feel free to post questions to our ask the expert blog for him to answer.  For more information join the rss feed at www.kwcommercialsa.com/blog !  May 2011 be your best year yet!  No regrets!  No reserves!

March 21, 2011 08:46 AM #2
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