A purchase and sale agreement, also called a sales and purchase agreement or a purchase and sales contract, is a legally binding document that parties in a transaction use to stipulate the terms and conditions that will guide the sale and transfer of goods or property.
A key thing about a purchase and sale agreement is that it does not transfer the property or goods that the parties are negotiating. What it does is create an obligation for the seller to sell, and an obligation for the buyer to buy.
Transactions that use purchase and sale agreements, such as real estate transactions, are complex transactions that may span into weeks and involve lots of processes and stages. These agreements provides a clear roadmap so parties know what they can expect at each point.
A purchase and sale agreement is not the same as a purchase agreement. A purchase agreement is the final document used to transfer a property from the seller to the buyer, while a purchase and sale agreement specifies the terms of the transaction. Parties will sign a purchase agreement after both parties have complied with the terms of the purchase and sale agreement.
A purchase and sale agreement is also not a purchase order. A purchase order is a document that contains a list of supplies or products a buyer wants to buy from a seller.
A purchase and sale agreement is used to document the parties’ intentions and the terms they have agreed will govern the transaction. You can include specific terms like the product or property, the price of the product or property, conditions for the delivery of the product, and the date of product delivery.
Writing these things down protects each party’s interests by ensuring that there is a legally binding agreement they can resort to if there is a dispute. It also protects any deposit the buyer makes on the transaction and secures their commitment.
In real estate transactions, parties use these agreements to make provisions for the buyer to inspect the property. It also details any defects the property has that are known to the seller. The contracts usually contain conditions that could lead to the termination of the agreement; for example, if the buyer is not satisfied after inspecting the property.
We mentioned earlier that they are commonly used in real estate transactions; however, you can also use them in other types of property transactions, like vehicle sales.
Purchase and sale agreements are also used in the transactions of company stock. Parties can also use them where a business is acquiring another business.
In addition, you may use it when purchasing large-volume and expensive materials from a supplier when the supply will span over a period of time. This can be useful for routine purchases of these types of supplies since it helps suppliers and purchasers keep an estimate of demand and cost.
To write a purchase and sale agreement, you’ll need to include the following elements:
To manage your agreements efficiently, you need to pay close attention, as the stakes are often high. Various transactions are rarely the same. A purchase and sale agreement is also not the final document, so parties can (and usually will) renegotiate some terms before closing the transaction.
You’ll need to monitor the agreement closely to ensure that parties follow the terms or to discover when you may renegotiate more favorable terms. Often, parties may use an addendum to change the terms of the agreement or to add additional terms.
You can use an addendum to change the closing date, inspection periods, or purchase price. For instance, in a business purchase transaction the buyer might discover that the business is worth a lot less than the price they offered because it has a high employee turnover. The buyer may then decide to continue with the transaction but will offer a lower price. Parties will renegotiate on price and use an addendum to modify the new cost. You may have several addenda to one purchase and sale agreement.
Managing a purchase and sale agreement is more challenging if your organization does not use a contract lifecycle management (CLM) software in managing your contracts. This type of agreement is unique in that it facilitates a transaction.
Any lack of contract visibility, poor communication between stakeholders, or inefficient tracking of contract key deadlines—which are common in the traditional method of contract management—will adversely affect the outcome. This is why innovative businesses use contract lifecycle management software to manage their purchase and sale agreements, as well as their other business contracts.
Using a contract management software will automate your contract workflows, which will help you create agreements faster, communicate efficiently with both internal and external stakeholders, and stay on top of your obligations and key timelines.
Ironclad’s CLM is an enterprise-grade contract management software designed to handle all contract management lifecycle stages for organizations of all sizes.
With Ironclad’s CLM, you can increase your contracting efficiency by creating templates of workflows for your organization’s purchase and sale agreement. You can save time and resources by using Ironclad’s central platform for creating, approving, revising, editing, negotiating, and redlining your purchase and sale agreement.
Ironclad’s central repository ensures you and your team can have access to and track your purchase and sale agreements without hassle. Our CLM software can also help you create an addendum to your purchase and sale agreement conveniently if it’s needed.
Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.
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