Colorado REALTOR Digital Magazine April 2011 : Page 8
By: Jon Goodman & David Farus State Approved Commercial Contract Colorado has returned to having a State approved real estate purchase contract designed for commercial transactions. This article identifies differences between the new Colorado Real Estate Commission (CREC) approved commercial and residential forms, a conceptual flaw in the commercial form, and a partial solution to the flaw. Most of the important comments on the commercial contract also apply to the new “Income-Residential” form. Compared to the residential form, the new commercial form omits sections that are typically not relevant in commercial transactions, including clauses addressing: FHA and VA financing; sources of potable water; carbon monoxide alarms; lead based paint; methamphetamine; and the Colorado Foreclosure Protection Act. The commercial form adds provisions addressing trade fixtures, environmental inspections, Americans With Disabilities Act (ADA) evaluations and tenant estoppel statements, including separate contingencies for the environmental inspections, ADA evaluation and tenant estoppel statements. CONCEPTUAL FLAw While the attempt to create a practical, CREC-approved commercial contract form is welcomed, the new form is likely to be perceived by many in the commercial real estate community as having a conceptual flaw. The more common practice in commercial transactions is for the buyer to have fewer and broader contingencies than in residential deals. Contracts in commercial transactions are often drafted to include only a single, all-encompassing “free-look” due diligence contingency. This practice differs significantly from the custom in residential transactions where different categories of due diligence have their own contingency. For several years, for example, residential contracts have typically segregated contingencies for financing, appraisal, common interest community documents, title, “off-record” matters, survey matters, insurability, and the condition of the property. Rather than conforming to the custom in commercial real estate of having fewer and broader contingencies, however, the new CREC-approved commercial form has added contingencies for environmental and ADA evaluations, and tenant estoppel statements, as well as a new contingency included in all the new, 2011 forms regarding the buyer’s satisfaction with “Due Diligence Documents.” Depending upon how one counts, the commercial contract has eleven separate, subjective buyer contingencies. In addition to fighting custom, the overlapping nature of many of the eleven separate contingencies in the commercial form, and the differing consequences associated with some of those contingencies, potentially creates problems. Consider, for example, a situation involving a neighboring property owner’s retaining wall that encroaches onto the property under contract. Several of the contingency provisions of the commercial form might apply to such an encroachment. If the buyer learns of the encroachment through its own investigations, §8.2 appears to continued on next page page 8 | www.ColoradoREALTORS.com
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