In some cases, a buyer and seller of commercial real estate which seek to enter into an agreement by which the seller will provide financing to the buyer. These types of transactions often differ from those in which the buyer is financing the purchase on its own or with third party funds.
A blueprint for such a transaction is a form of contract known as Articles of Agreement for Deed. The Articles will map out the major terms of the transaction, and will need to be written out and executed by the buyer and seller.
Most importantly, the Articles of Agreement for Deed will provide for a stream of payments to be made by the buyer to the seller, either monthly or in other regular periods. These payments they begin at an initial closing, at which time possession of the premises is tendered by the seller to the buyer. The Articles of Agreement for Deed likely will have various other provisions that the buyer must observe while holding possession of the property.
Transactions pursuant to Articles of Agreement for Deed are not traditional sales, however. Ownership does not transfer to the buyer at the initial closing. Instead, the buyer must complete the stream payments and any other conditions set forth in the Articles of Agreement for Deed. When he has done so, full ownership may be obtained at a final closing. If the buyer defaults in an obligation set forth in the Articles of Agreement for Deed, however, he may be deemed to have forfeited his interest in the property, or may be subject to any other remedies available to the seller under the Articles.
Meanwhile, despite transferring possession of the property to the buyer at the initial closing, the seller retains an interest in the property. Therefore, unlike a traditional sale, where the seller divests both ownership and possession at the closing, he may continue to have obligations during the period the Articles of Agreement for Deed are pending.
Whether Articles of Agreement for Deed are suitable for a particular transaction depends on the nature of the transaction and the relationship of the parties. When Articles of Agreement for Deed are appropriate to a particular transaction, it is important that they clearly reflect the intent of the parties. Therefore, if you are considering a seller-financed installment contract, call us to make sure that the terms and the mechanics are appropriate for your deal.