At some point in the process of a purchase and sale transaction, you will be presented with a binding legal contract for your review and signature (or, less often, other parties will look to you to draft or provide such a document). The form of contract may be lengthy and complex; it may be in fine print or otherwise difficult to read; and it may or may not be well drafted. Following are some tips to bring some clarity to the process:

1.       Preprinted Forms vs. Custom Documents.

In response to the need to provide a form for agents to complete in various situations, many of the larger brokers, as well as multiple listing services, have drafted preprinted forms - one for the basic terms of the transaction and numerous additional ones for inspection and financing contingencies, certain required disclosures and general terms and conditions, to cite just a few examples. Such forms have the advantage of covering most expected contract terms and problem areas and can be completed fairly quickly. The disadvantages are that substantial portions may not relate to your transaction and you may end up with half a dozen forms which must be separately signed and initialled.

Purchase and sale documents prepared for a particular transaction by a lawyer are apt to consist of a single document; or at least fewer documents, and if properly drafted can address aspects of your transaction more efficiently. They will normally be produced from formats available to the lawyer in his or her word processing system so that each clause does not have to be drafted anew for each transaction. An additional advantage of the system is that successive versions of the document can be prepared as offers and counter-offers go back and forth, thus greatly reducing or eliminating missing, hard-to-read and sometimes confusing "cross-outs" and initials.

2.       Always Read the Document.

How many times have you sat in a bank or car dealer's office faced with a multitude of forms, some in fine print, on the back as well as front, with too little time to read each and every form? You should read them anyway, or have a lawyer to review them for you no matter how boring (or embarrassing) it might seem. Never sign a document you have not read and understand. Nor can you rely on the other party's verbal explanations of contract clauses, which are almost always inadmissible in court anyway. No matter how boring the document may seem, I can assure you it will become much more exciting when the fine print applies to you and your money is at stake. If a business will not allow you to take a document home to look it over, do you want to deal with them? (In a recent auto lease transaction, I instructed the dealer to fax all documents I would be asked to sign beforehand. Later, when the finance manager presented me with a new document less favorable to me, I was able to say "Nope - not part of the deal").

3.       Do Not Hesitate to Ask for Changes.

Many documents are "contracts of adhesion" (often because third parties financiers who use them insist on uniform provisions), notable examples being mortgage loan documents and various types of leases. Such documents are (except for the blanks) presented on a "take it or leave it" basis. Most documents, however, are simply a reflection of one party's wish list of how the transaction should be structured - these include all real estate and business purchase and sale documents.

4.       Red Flags in Proposed Documents.

From a Buyer's perspective, these would include the following:

- Choice of law or venue (place where suit must be filed) provisions outside the State of Washington

- Contingencies which expire automatically if the Buyer fails to give written notice of rejection

- Arbitration clauses (these are a problem because the arbitrator can be less impartial than court, massively inconvenient if not local, and each arbitrator must be paid to hear your case, while the court judges and commissioners work without charge to you)

- Missing "non-compete" covenants

From a Seller's viewpoint, the following:

- Excessive contingencies or contingencies whose terms are not clear, making it unclear when the buyer is out of the transaction

- Delayed payment of seller's accounts receivable after being collected by buyer and run through buyer's books

- Unsecured or poorly secured time payments and lack of personal guarantees on the buyer's obligation after Closing

- Unfavorable allocation of purchase price with adverse tax consequences

- Arbitration clauses (for same reasons stated above)

For either party:

- Interest rate on post-closing obligation substantially at variance with market rate

- Contract language not understandable or relevant to the transaction

- Contract difficult to read

- Unclear provisions as to how notice is given

- Unreasonable amount of earnest money (too high or too low)

- Contract unclear as to what exactly is being sold

The above list is by way of example only. A good lawyer will review even a form contract for each client and each transaction to be sure it serves the client's interest. This can save many times the legal expense if litigation is avoided down the line.

The above is furnished as general information relevant in the State of Washington only and may not be relied on as legal advice, specific to any situation or otherwise, by any person, whether or not a client of the firm.