What Is a Purchase and Sale Agreement?

A purchase and sale agreement is a specific kind of contract that outlines the terms and conditions of a transaction between a buyer and a seller. These contracts also define legal obligations and protect parties’ rights to a particular sales transaction (usually for a product, not a service).

In general, purchase and sale agreements are often formed in situations that involve the sale of real estate property (e.g., a home), company stock, and other assets. However, they can technically be used for any arrangement involving goods sale. In contrast, a contract for a transaction that involves the sale and purchase of a service is known as a “service agreement.”

Suppose you are considering purchasing or are in the preliminary stages of selling your property. In that case, you should strongly consider drafting a purchase and sale agreement before exchanging money or goods. Contact a local business lawyer if you have any questions or need help writing a purchase and sale agreement. A lawyer will be able to assist you in drafting, editing, and reviewing the terms of your final agreement.

What Do Purchase and Sale Agreements Accomplish?

Most contracts, including purchase and sale agreements, aim to preserve a written record of the parties’ original intentions when they signed the contract. It also offers both parties legal protection in the event that a dispute arises over the contract and outlines the duties of the contracting parties to ensure they fulfill their end of the agreement.

Specifically, a purchase and sale agreement may be used to identify a product and property, the price of that product and property, the conditions for delivery (e.g., date, time, location, etc.), and the start and end date of the parties’ agreement. 

As mentioned above, these agreements are frequently used in selling real property or a house. The parties will typically enter a contract period using this agreement where the buyer may have to put money into an escrow account. Still, they do not hold the title at this point, and they have not paid the seller directly for their property or house.

In such a scenario, the agreement will provide instructions about the closing date, what else the buyer needs to procure to get ready to purchase the house (and vice versa for the seller), and additional provisions regarding home insurance and situations that would terminate a contract.

Purchase and sale agreements may also be used for large orders between business suppliers and purchasers. For example, suppose a purchaser wants to order a certain number of items every holiday season for the next five years. In that case, this type of agreement can greatly help predict future costs, product demand, and shipping details.

What Is Included in a Purchase and Sale Agreement?

The information that is included in a purchase and sale agreement may depend on the subject matter of the contract (e.g., real estate vs. shipping goods) and the desires of the parties forming the contract. In general, however, all purchase agreements should include the following:

• The identities of the parties;
• A description of the property or products being sold;
• The price of the goods or property;
• An explanation of how, when, and where the items will be delivered;
• A description of when and how payments will be made;
• The amount of a down payment (if applicable);
• The signatures of the contracting parties; and
• A provision states how and what happens when the agreement is terminated or breached.

Some other clauses that may be included are ones concerning the confidential nature of the agreement, whether any provisions are severable, a clause that addresses which state law will govern in the event of a dispute, whether the parties must resolve all issues in arbitration or mediation (as opposed to litigation), and finally, any warranty claims that the seller wants to make about their product.

When Do You Sign a Purchase and Sale Agreement?

The most important thing to remember about purchase and sale agreements is that they are not considered the final contract. This is especially true if the transaction involves selling a house. Instead, the deal binds the parties to the terms agreed upon after the negotiation stage but before the official closing date, where the final contract will be signed.

The purchase and sale agreement is a placeholder for the final contract. Using the sale of a house as an example, the purchase and sale agreement will remain in place until the closing date. At the closing, the parties will sign the final housing contract (which will replace the agreement), the buyer will pay the seller whatever money they still owe to purchase the house, and in return, the seller will hand over the keys to the buyer.

What Happens After You Sign a Purchase and Sale Agreement?

After the parties sign the purchase and sale agreement, it will become a legally binding contract until the final transaction is complete or a final contract replaces its terms, as in the housing examples. This means that any terms or obligations that the parties agreed to will be binding on them. If a party breaches a term or condition in the agreement, the non-breaching party may take legal action against them.

Each party’s duties will depend on what was agreed to during negotiations and the content contained in the signed copy of the agreement.

For instance, a house buyer must get an inspection, pay off the seller, and complete the additional duties the parties agreed to before the closing date. In contrast, the seller will need to repair any items they decided to fix, ensure they are packed and ready to go on the move-out date and hand over the keys to the buyer upon payment at the closing.

How Are Purchase and Sale Agreements Enforced?

A purchase and sale agreement is a business contract. Thus, they must be created in accordance with the contract laws of the state in which they are being formed.

These same laws may also guide what to do when one party wants to sue the other party for related legal issues, such as breach of contract or mutual mistake, and the types of damages a party can seek based on the actual problem. The contract should contain this information as well.

In cases that involve a breach of contract, a court will typically defer to the document itself to resolve the issue before it even reviews state laws. This is because correctly formed contracts are already assumed to comply with the law, so the parties’ intentions at the time the contract is signed will take precedence.

The most common example of this type of contract dispute may occur when a seller promises to do business with a specific buyer, but then breaches their agreement by selling the product or property to an entirely different buyer.

If, after reviewing the contract terms, the actions of both parties, and the facts of the case, the court determines that there has been a breach, then the breaching party will most likely need to reimburse the non-breaching party for their losses.

A non-breaching party may also request non-monetary or equitable damages if they can prove that the agreement was breached. Fair damages for breach of contract may include contract reformation, specific performance, contract rescission, and an injunction. It should be noted, however, that equitable remedies are usually only granted in cases where a monetary damages award is not enough to protect the interests of a non-breaching party.

Do I Need a Lawyer for Help with a Purchase and Sale Agreement?

Purchase and sale agreements are essential to most transactions involving goods sales. Not only do they describe the rights and duties of the parties, but they also serve as another layer of protection against future legal disputes. However, these contracts will not provide legal guardians if they are not valid and drafted clearly and unambiguously.

Therefore, if you need assistance creating a purchase and sale agreement, you should speak to a local commercial lawyer for further guidance. An experienced business lawyer can help you negotiate for better terms, draft and edit the agreement, and ensure you are creating a legally enforceable contract. Your lawyer can also explain any conditions that may seem confusing and talk to the other party’s counsel if you need to update the agreement.

Also, suppose a dispute arises over the agreement or at another transaction stage. In that case, your lawyer can help you prepare a case and provide court representation if necessary.