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The Missouri Bar – How to Series

“Real Estate Contracts” November 12, 2014

Nancy L. Browne

The Limbaugh Firm

407 N. Kingshighway, Suite 400

Cape Girardeau, MO 63701

573-335-3316

nbrowne@limbaughlaw.com

1. INTRODUCTION

The Statute of Frauds (RSMo §432.010) requires that all contracts for the sale of real estate be in

writing. The final contract can be short and sweet, long and detailed, or somewhere in between,

depending on the transaction. But regardless of the amount of money involved or the complexity of the

deal, all contracts should clearly set out: the parties, the property being sold, the sale price, the closing

date, any contingencies, pre-closing obligations, and closing details.

To best help your client, your job is to assist with negotiation of the contract terms and to make

sure the contract clearly and accurately sets forth those terms, not to simply be a scrivener, keeping in

mind that both sides want the deal to happen. This is no time to be adversarial. On the other hand, you

must represent your client zealously, and some provisions can be written either seller friendly, buyer

friendly, or neutral. How do you know how far to push for your side? The answer depends not only on

the client’s wishes, but on the circumstances surrounding the transaction. If the seller is very motivated to

sell and the very existence of the buyer is great news, the seller will be much more amenable to agreeing

to more “buyer friendly” terms than a seller of property that buyers are clamoring for. If the buyer is

willing to pay top dollar for the property, the seller may be more willing to pay for items like title

insurance, survey, and the closing fee, as opposed to a seller who believes the buyer is already getting a

good deal on the price. The client will know, or at least have a good idea, of these factors, and a

discussion about them should be the starting point of every transaction.

The majority of home sales in Missouri are handled by real estate agents using pre-printed fill-in-

the-blank or “check the box” contracts prepared by attorneys. Consequently, the following materials are

geared toward commercial transactions.

2. LETTERS OF INTENT AND OTHER PRE-CONTRACT AGREEMENTS

2.1 General. While it is not unusual for a client to engage an attorney at the beginning of the

negotiations, many times clients wait until they have agreed with the other party on some or all of the

basic business terms. In either case, one or both of the parties may want to utilize a “letter of intent”

(“LOI”) to confirm the basic terms that have been agreed upon before spending the time and money to

negotiate and draft the ultimate contract. LOIs can be very useful, especially in larger commercial

transactions, but the danger in using them is that if negotiations come to an impasse and a final contract is

never signed, one of the parties may try to enforce the LOI as a binding contract.

The Statute of Frauds contained in RSMo §432.010 states that “no action shall be

brought. . . upon any contract for the sale of land . . . unless the agreement upon which the action shall be

brought, or some memorandum or note thereof, shall be in writing and signed by the party to be

charged therewith . . . .” (emphasis added).

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How much is sufficient to create a binding contract for the sale of real estate? Missouri

courts consider several general principals of law when faced with this question. First, in order to justify

specific performance, a contract must not be indefinite, uncertain or incomplete, for the Court will not

make a contract for the parties; Three-O-Three Investments, Inc. v. Moffitt, 622 S.W.2d 736, 738

(Mo.App W.D. 1981). Secondly, the contract must be complete in its “essential and material terms”, and

capable of being enforced without adding to its terms. Ray v. Wooster, 270 S.W.2d 743, 751 (Mo. 1954);

Moffitt, 622 S.W.2d at 738.

2.2 Essential Terms. What are the “essential terms” of a contract for the sale of real

property? Missouri caselaw indicates they are:

(1) the parties;

(2) the subject matter;

(3) the promises upon both sides;

(4) the price; and

(5) the consideration.

Wooster, 270 S.W.2d at 752; Moffitt, 622 S.W.2d at 738; Seabaugh v. Sailer, 679 S.W.2d 924, 926

(Mo.App. E.D. 1984); Estate of Looney v. Williamson, 975 S.W.2d 508 (Mo.App S.D. 1998).

Although the “list” of essential elements contains five items, there may in actuality only

be three. Two of them, price and consideration, are virtually the same, and the author has found no cases

which make a distinction between the two. As for “the promises upon both sides”, this appears to be in

actuality another way of stating “the basic elements of the agreement” (See Seabaugh, infra, at 926.)

This brings it down to the three most crucial requirements that must be present in order to satisfy the

Statute of Frauds: First, the parties; second the subject matter; and third, the price. Interestingly, Missouri

Courts had long held that these three elements were the essential terms of a contract (See, Kelly v. Thuey,

455 S.W. 300 (Mo. Sup.Ct. 1898)) until 1954 when the Supreme Court adopted the five point test.

A closing date is not considered an “essential” term. If no closing date is agreed upon,

closing within a “reasonable time” will be inferred. See, Ray v. Wooster, infra, where the Supreme Court

of Missouri enforced the following contract:

April 17, 1951.

Received of J.J. Ray the sum of $5,000 in the form of a check as part payment on my

farm known as Oak Hill Farm, including land, buildings, cattle and implements acreage

359 more or less the amount $33,600.

Balance $28,600 payable on delivery title clear of any incumberances.

The term all cattle as of this date.

The sum of ten dollars to be paid to B. F. Simpson for each calf on hand.

/s/ A. M. Wooster

/s/ Mrs. Veda S. Wooster

As you can see, it doesn’t take much to create a binding contract. The author successfully enforced a

contract consisting of a check from the buyer to the sellers in the amount of $500, endorsed by the sellers

on the back, with the following written in the ‘memo’ section of the check:

OAK LANE SUBDIVISION. DEPOSIT ON ALL OF LOT 22. ALSO ALL OF LOT 21

AND ALSO PART OF .50 AC ONCE CONVEYED TO ANDREW GORMAN ET AL

BY DEED RECORDED BOOK 38, PAGE 636 LAND RECORDS PERRY CO. MO

(OLD SCHOOL PROP.) SP $13,000.00

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2.3 Anti-Contract Clause. The best way to protect against LOIs or other memoranda being

found to be an enforceable contract is to include an “anti-contract” clause, such as the following:

NO CONTRACT. This Letter of Intent is not intended by the parties to

constitute a binding agreement between them for the purchase or sale of the

Property, but rather to serve only as the basis for negotiating and drafting a

definitive Purchase Agreement between the parties. The parties contemplate that

comprehensive negotiations will occur before a binding written agreement

acceptable to the parties can be prepared, and that such agreement will contain

additional essential terms. Notwithstanding the foregoing, it is expressly agreed

that either party may terminate negotiations at any time and for any reason.

Efforts by either party to perform due diligence, arrange or obtain financing, or

carry out other acts in contemplation of the possible purchase or sale of the

Property shall not be deemed evidence of any intent by either party to be bound

by this Letter of Intent. In the event either party alleges that this Letter of Intent

constitutes a binding agreement for the purchase or sale of the Property, or grants

an interest in or claim to the Property, the alleging party shall be liable for the

legal fees and costs incurred as a result thereof.

The key is to clearly state that the parties do not intend for the LOI to be a binding contract. A general

statement such as “details to be worked out” or similar language does not negate a finding that a contract

exists. See, Allied Disposal, Inc. v. Bob’s Home Service, Inc., 595 S.W.2d 417, 419-20 (Mo. App. E.D.

1980) (discussing vagueness standards).

2.4 Emails. Lastly, in the modern world of emails, both the attorney and the client must be

careful to prevent negotiations by email from becoming a binding contract. Missouri has enacted the

Uniform Electronic Transactions Act (RSMo § 432.200-295), which takes a broad view of electronic

signatures. A party may attempt to show that a meeting of the minds occurred in an email summarizing

the principal terms, or by an email acknowledging that all requested revisions to a contract draft have

been made. The best way to prevent this from happening is to include a statement along the following

lines in all email communications regarding the contract:

This email shall not constitute a final, binding agreement, and no binding agreement will

exist unless and until each party physically signs the actual Purchase Agreement.

3. GENERAL DRAFTING TIPS

3.1 Clarity. Above all else, keep in mind that an attorney’s job in drafting any contract is to

set out the parties’ agreement as clearly as possible. The best way to accomplish this is to carefully proof

read the entire contract to confirm that each provision is clear and capable of only one interpretation, and

that the various provisions do not contain conflicting terms. For example, if the contract is initially

drafted to provide for an earnest money deposit and then that is later removed, in addition to revising the

figure in the ‘balance due at closing’ section, references to earnest money may need to be deleted in

several sections, such as those discussing default, contingencies, damage prior to closing, etc.

3.2 Organization. Another way to keep the contract clear and easy to follow is to utilize a

logical and clear structure for organizing the terms. Start with a clear numbering system – nothing is

harder to follow or discuss than a contract consisting of multiple pages of un-numbered paragraphs.

Subsections are also helpful, but make sure you are consistent. For example, assume section 4 of the

contract is the contingency section. The section may begin with a general statement that the buyer’s

obligation to close is contingent upon the following items, all of which must be completed by a certain

date (or within a set time period following execution of the contract, or a set time period prior to a firm

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closing date). Each separate contingency should then be set out below that in a subsection, designated

4.1, 4.2, etc. or as A., B., and C. Not only is this easy to follow and refer to when negotiating revisions, it

also allows you to quickly and easily add to, delete from, or rearrange sections of text.

3.3 Headings. The use of headings can be extremely helpful, but keep them clear and

descriptive. Remember, when you’re negotiating the contract, you may be working on it every day and

have it practically memorized. But if your seller client calls you several weeks or months later to tell you

the buyer is threatening not to close and you need to quickly confirm the seller’s remedies in that event

(while your client is holding on the phone), the provision will be much easier to locate if you see a

“Default” heading, and even easier if it’s broken down into “Seller Default” and “Buyer Default”

subsections. Also, keep in mind that if you include language that doesn’t appear to be related to the topic

in the heading, it will be difficult to find later when the contract isn’t fresh in your mind. Some lawyers

are adverse to headings because they fear that they could be interpreted in a manner that may alter the

contract provisions. This concern can be alleviated by using the following provision:

HEADINGS. Headings and titles of the paragraphs and subparagraphs herein are placed

herein for convenient reference only, and shall not to any extent have the effect of

modifying, amending or changing the express terms and provisions of this Agreement.

3.4 Defined Terms. Using defined terms can also be extremely helpful in real estate

contracts. Always define the term at the first reference, then use the capitalized term on all further

references in the contract. It also helps to place the defined term in BOLD when it is being defined.

Definitions can either be inline or after the definition. For example, either:

The total “Purchase Price” for the Property shall be $441,000, as adjusted under

this Contract. The Purchase Price shall be paid as follows . . .

or

The total amount paid for the Property shall be $441,000, as adjusted under this

Contract (the “Purchase Price”). The Purchase Price shall be paid as follows . .

.

3.5 Easy to Find. Another frequently used tactic by experienced attorneys is to place other

important information in bold, such as the dollar amount paid, the parties’ names, the property’s street

address, the county in which the property is located, all exhibit numbers, and any time periods (such as

“Buyer shall have 15 days to complete an inspection.”). After the contract is signed and you are

proceeding toward closing, you are likely to pull out the contract for reference dozens of times.

Frequently you need to check time periods, and placing them in bold simply makes your job easier in the

future. It also helps if you use the contract as a basic form for future transactions, as the bold draws

attention to the items you need to review or change for the new client’s needs.

3.6 Numbers or #s. Spelling out numbers in text has long been the norm for real estate

attorneys, either with or without the inclusion of the numerals (“Fifteen Thousand Dollars and Zero Cents

($15,000.00)”). However, the use of numerals without number words is beneficial for several reasons.

First, the numerals stand out more from the text and are easier to notice when skimming through the

contract, both during the editing stage and later on. Second, the numbers often change as negotiations

progress (the purchase price may go up or down, or number of days for inspections may change), and if

clerical mistakes are made which result in inconsistencies (“Fifteen (10) days”) it will not only be

embarrassing, but could result in a malpractice claim, since spelled out words in the text will prevail over

numbers in the event of an ambiguity. See, e.g., Hernandez v. Hernandez, 872 S.W.2d 161, 166 n.6

(Mo.App. W.D. 1994) (citing as example UCC §3-118, codified in Missouri as RSMo 400.3-118 but later

repealed. The repeal of this section is not likely to affect a future court’s holding on this issue.)

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4. THE PARTIES

4.1 Get it Right. Getting the names of the parties right may be a seemingly simple task, and

yet it is frequently botched. The seller’s name(s) should match the name(s) on the deed by which the

seller took title. The buyer should be clearly listed with the exact name or names in which the buyers

wish to take title to the property.

When representing either side, always double check the name of the seller. If the seller is

your client, ask him to bring you a copy of his deed or title policy. If he can’t find either one, ask him to

bring in a copy of the tax bill for the property. If you represent the buyer (or a seller who doesn’t provide

you with what you’ve requested), you can call the County Tax Assessor (not the Tax Collector) in most

counties, and obtain a deed reference by providing them with the street address of the property in

question. Remember, the tax assessor doesn’t tax people willy-nilly. The reason the grantee’s mailing

address is required on deeds is so that the Assessor can mail the tax bill to the right party at the right

address. Once you have the deed reference (which will almost always be on the actual tax bill), a quick

call (or trip) to the Recorder’s Office will get you a copy of the last deed of record. Although you might

not be able to get this information in St. Louis County or Jackson County with only a phone call, the

author has successfully used this procedure in dozens of other, smaller counties. This task can be easily

delegated, but whether you do it yourself or assign it to a staff remember, remember that you’re asking for

help, so remember the adage, “You get more flies with honey than with vinegar.”

4.2 Entities. If the selling party is a legal entity such as a corporation, LLC, bank, credit

union, limited partnership, etc., always check the Secretary of State’s website

(www.sos.mo.gov/BusinessEntity) to confirm the exact name (“ABC, Inc.”, “ABC Co.”, “ABC

Company”, “ABC, LLC”, or “ABC, L.L.C.”). It is amazing how many sophisticated business owners do

not know the correct legal name of their business entity. Even major corporations often own real estate

under a different entity name than what is used for general business purposes. For example, Wal-Mart

titles its properties in the name of Wal-Mart Realty Company.

4.3 Individuals and Marital Interests. If the selling party is an individual, always include

their marital status (such as “John Doe, a single person,” or “John Doe and Mary Doe, husband and

wife”). If property is held by a married couple, a conveyance by only one of them conveys nothing.

Ethridge v. Tierone Bank, 226 S.W.3d 127, 132 (Mo. banc 2007); In re Estate of Blair v. Blair, 317

S.W.3d 84 (Mo.App. S.D. 2010). And remember that under Missouri law a spouse of an individual

owner of real estate has a “marital interest” and must join or consent to any conveyance or it will be

deemed to be in fraud of their marital rights. RSMo §474.150.2. Therefore, if the seller is married, even

if the property is owned by only one spouse, the other spouse should be named in and sign the contract.

The proper way to do this is:

John Doe, individually, and Mary Doe, his wife

or

Mary Doe, individually, and John Doe, her husband

Some attorneys mistakenly believe that by including a spouse with only a marital interest

as a grantor, the non-owner spouse is liable for the warranties of title. However, RSMo §442.030 makes

the deed covenants binding on both spouses only if the property is owned by the couple as tenants by the

entirety, impliedly relieving the non-owner spouse from the warranties of title contained in the deed.

Some attorneys also mistakenly believe that although it may be necessary for the non-

owner spouse of a seller to sign the deed, there is no obligation for that spouse to sign the contract. This

is not the case. Since the spouse must sign the deed, the only way to ensure that will happen is for the

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spouse to obligate him/herself to sign the deed by also signing the contract. See, JAS Apartments, Inc. v.

Naji, 230 S.W.3d 354 (Mo.App. W.D 2007) (“Naji I”) and JAS Apartments, Inc. v. Naji, 354 S.W.3d

175 (Mo. banc 2011) (“Naji II”) for a case illustrating the unpleasant ramifications of omitting a spouse

from the sale contract.

If the contract contains representations and warranties by the seller, the non-owner

spouse can easily be protected by adding a provision stating that the spouse is named a party to the

contract for the purpose of establishing her consent to the transaction, that the only closing obligation of

the spouse is to execute the deed, and that the spouse is not joining in any seller representations or

warranties.

An exception to the rule requiring seller spouses to be named as a party in a contract for

the sale of real estate is where the seller is acting in a fiduciary capacity, such as a trustee or personal

representative. Only the actual trustee or personal representative should be listed, and in this case, his or

her marital status is irrelevant.

From the buyer’s perspective, keep in mind that a married person may want to purchase

property in his or her individual name if non-marital money is being used to purchase the property. You

do not want to inadvertently convert separate property into marital property.

4.4 Trusts. It is always a good idea to ask an individual, whether married or single, if he has

a trust for estate planning purposes and, if so, if the property has been conveyed into that trust. Many

people “forget” they have a trust, and even if you ask them to bring you a copy of the deed to the property

being sold, they may bring you the original purchase deed from 10 years ago and not the deed putting the

property into trust five years ago. Trusts may now own property in the name of the trust itself, without

designating who the trustees are (RSMo §456.021), but the trustee(s) must actually sign the contract.

Always consult the actual trust document to ensure the proper name of the trust and the current trustees,

all of which should sign the contract as trustees.

4.5 Manner of Taking Title. A buyer’s attorney should always discuss the pros and cons of

different methods of taking title when dealing with a buyer. The options include holding the property

individually (even if married), tenants by the entirety (for married couples only), tenants in common, joint

tenants with right of survivorship, an existing entity, or the formation of a new entity. When dealing with

a married couple, a tenancy by the entirety is presumed. Nelson v. Hotchkiss, 601 S.W.2d 14 (Mo.

1980). But if the buyer is a married couple and they are buying anything other than a home, the attorney

should also explore the possibility of using an existing entity or setting up a new one to insulate the

couple from liability.

If the clients desire to take title as tenants in common, the percentage of ownership may

not be equal, depending on who pays what. Remember, under RSMo § 442.450, if two or more parties

are named as the grantees in a deed without a designation as to the manner in which they take title, it is

presumed that they take as tenants in common. And although the parties will be presumed to take equal

undivided interests in the property unless the deed specifies otherwise, that presumption can be rebutted

with proof of disproportionate contribution to the purchase price, as long as there is also neither a family

relationship between the co-tenants nor evidence of donative intent by the party who contributed more

than his presumed share towards the purchase price. Johannsen v. McClain, 235 S.W.3d 86 (Mo.App.

S.D. 2007). These issues can be easily avoided by spelling out the percentage of ownership in the

contract. Keep in mind that how the buyer is identified in the contract will be carried over to the deed

when it is prepared. The following is an example of two buyers who wish to take title as tenants in

common with their ownership percentage based on the contribution to the purchase price:

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John Doe, a single person, as to an undivided 70% interest, and Mary Doe, a married

woman, taking as her sole and separate property, as to an undivided 30% interest, with

the respective interests held as tenants in common

4.6 Non-Owner Seller. Occasionally, a client will ask you to prepare a contract for the sale

of property the client doesn’t own. The typical situation involves a client who expects to acquire the

property in the near future and doesn’t want to lose a buyer, such as a bank in the process of foreclosing

property, or someone who has a right of first refusal or option on property that he intends to buy and

“flip”. If this is the case, the contract should disclose the fact that the seller is not the current owner, and

be specifically contingent upon the seller acquiring title prior to the closing date.

5. PURCHASE PRICE

5.1 General. While the purchase price is usually a set dollar amount, sometimes it depends

on a calculation that will be made before closing. Examples of this include commercial property sold at a

square foot price or farmland sold at a per-acre price with the exact footage/acreage to be determined by

survey prior to closing, or a property to be valued based on an independent appraiser. So long as the price

can be calculated by following the contract terms, these provisions are perfectly acceptable.

5.2 Calculations Based on Area. If the price is to be determined by using a “per square

foot” or “per acre” figure, it is critical that a proper survey be performed by an agreed-upon surveyor.

When the survey is ordered, the surveyor should be instructed to calculate the area of the property being

sold, and told that his calculation will be used to set the purchase price. DO NOT rely on an old survey,

tax bill, FSA calculations, or size information provided to you by the client if the price is to be set this

way. (See Sections 8.2 and 10.4 below for more information regarding surveys). Example:

The total purchase price shall be determined by multiplying the total acreage determined

by the Survey, as set out in Paragraph 4 herein, by the sum of $ per acre, to be

paid as follows. . . .

If the contract is for farmland or vacant ground of any kind, always ask your client how the purchase price

was arrived at. Many times a client will tell you that the agreed price is, for example, $120,000, and

when you ask how they came up with that figure they will tell you 40 acres at $3,000 per acre. The

problem with this is that even though the deed may say “40 acres, more or less”, the true acreage could

vary from 38 acres (or less) to 42 acres (or more). A reference to acreage in a legal description is simply

“a matter of description, and does NOT amount to any covenant”. Cantrell v. McDonald, 412 S.W.2d

403, 408 (Mo. 1967); (but see MacKinnon v. Weber, 216 S.W.2d 638 (Mo.App. 1934), holding that

without a metes and bounds description of the property, the listing of acreage ‘more or less’ is a material

part of the description and ‘of the essence’ of the contract.) If a buyer later learns the true acreage is only

38 acres, he may ask you to demand a refund from the seller of $6,000. On the other hand, if the seller

later gets wind of the fact that the true acreage was 42 acres, he may feel cheated and come to you asking

you to write a demand letter to the buyer for $6,000. If the contract price was listed as a flat price of

$120,000, then both sides are out of luck absent the existence of fraud or mutual mistake (if the

discrepancy is material. See Cundiff v. Cline, 752 S.W.2d 409 (Mo.App. 1988.) Compare, Clippard v.

Kneibert, 226 S.W. 584 (Mo.App. E.D. 1920), with Brown v. Mickelson, 220 S.W.3d 442 (Mo.App.

W.D. 2007). The following clauses can prevent post closing disputes:

. . . The parties acknowledge that the Purchase Price has been determined based on the

acreage described in the legal description contained in Seller’s deed, which is ** acres.

The parties acknowledge that said acreage is an approximation and that the actual acreage

may be slightly more or slightly less than this figure; however, in such event, no

adjustment will be made to the Purchase Price.

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Alternatively:

. . . The parties acknowledge and agree that the Purchase Price has been determined based

on the existence of 2½ acres at $10,000.00 per acre. In the event the Survey does not

confirm the existence of 2½ acres, whether the actual acreage be more or less, either

party may demand an adjustment to the Purchase Price based on the actual acreage

multiplied at the rate of $10,000.00 per acre.

6. EARNEST MONEY

6.1 Amount. Most real estate contracts contain a provision for earnest money. This amount

serves as a showing of good faith on behalf of the buyer and as the seller’s main, and sometimes sole,

remedy if the buyer breaches. However, earnest money is NOT required for there to be adequate

consideration. In re Estate of Mounte, 39 S.W. 3d 499 (Mo.App. S.D. 2000). The amount is often

negotiated, and is usually either set as a percentage of the purchase price (typically 1-10%) or a round

dollar amount ($1,000, $5,000, etc.).

Clients will often agree to a nominal amount for earnest money, but this is a bad idea. If

the deal goes south, neither side wants to become involved in costly and time consuming litigation. A

smart attorney will advise seller clients to set the earnest money amount high enough so that in the event

the buyer backs out, the seller will get enough money to pay his out-of-pocket expenses (e.g., attorney’s

fee) and still have money to compensate him for his lost time and effort and the possible loss of another

sale. Although specific performance claims are often successful against breaching sellers (it’s easy to

make someone sign a deed), it is virtually impossible to get a judge to make a buyer close if the defense is

that he doesn’t have the money. And even corporations can become ‘cash poor’ in these situations. If the

buyer balks at the amount, but has negotiated a lengthy due diligence period, the seller can agree that the

money will go into an interest bearing account. Since the earnest money (and any earned interest) will

ultimately be credited against the purchase price, a buyer will be hard pressed to offer a valid reason for

not “putting his money where his mouth is”. After all, the seller’s attorney will argue, unless he intends

to breach the contract, why is he balking?

6.2 Escrow Agent. The best practice is to use the title company that will close the transaction

as the escrow agent holding the money until closing. However, it should be a company that people in the

area trust, and should also be insured – ask about coverage for their escrow services and whether or not

they have “E&O” (errors and omissions) coverage. Under RSMo § 381.058, the buyer and seller can

each obtain a “closing protection letter” from the insurance underwriter, which insures that the insurance

underwriting company (usually a national company) will stand behind the actions of the local office or

agent if the funds disappear. While it is rare for agents to run off with escrowed funds, it does happen. A

closing protection letter usually costs about $25 and is worth it.

6.3 Disposition of Funds. If all goes well and the contract is closed, the earnest money will

be applied to the purchase price at the closing, resulting in a credit to the buyer, and will become part of

the funds paid to the seller after deducting all liens and closing expenses to be paid by the seller. The

contract should specifically state how and when the earnest money will be distributed in other cases such

as non-satisfaction of contingencies, breach, casualty, eminent domain, etc. In practice, the escrow agent

will almost always require both parties’ signatures before distributing funds. Sometimes a very careful

drafting of the instructions to the escrow agent, designed to leave no room for questions of any kind, can

avoid this result. But if both parties will not ‘sign off’ on the distribution, the escrow agent may

interplead the funds, resulting in delay and litigation expenses for all parties.

6.4 Balance. If the closing is handled by a title company (the recommended practice),

RSMo §§ 381.410 and 381.412 require that the remainder of the purchase price be paid by “United States

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currency, funds conveyed by a cashier's check, certified check, teller’s check, as defined in Federal

Reserve Regulations CC, or wire transfers.” Many old contract forms still in use in Missouri require the

balance of the purchase price to be paid “in cash or other immediately available funds”. Although this

sounds reasonable, the author has experienced a buyer coming to closing with a suitcase full of cash. It

only takes one time, spending hours counting money to verify the amount as the seller’s attorney, to

appreciate the reasons for eradicating this phrase from any contract you ever come into contact with in the

future. Better practice requires the balance to be paid “by wire transfer or certified funds.”

The actual amount due from the buyer at closing will not be simply the purchase price

less the earnest money. Instead, the amount will be adjusted to reflect charges for expenses agreed to be

paid by the buyer and credits for the seller’s portion of real estate taxes and pre-paid rents, if any. For this

reason, a well written contract will provide that “the balance of the Purchase Price, in the amount of $X,

adjusted as provided herein, OR subject to adjustments at Closing, shall be paid. . . .”

7. SELLER FINANCING

Sometimes, a seller will agree to “carry back” (finance) all or a portion of the purchase price. In

this situation, the best practice is to negotiate and prepare the promissory note and deed of trust (and other

related documents, such as a personal guaranty, assignment of rents and leases, or personal property

security agreement), at the same time the real estate contract is being negotiated and prepared. In addition

to being described generally in the contract, the proposed documents should be attached as exhibits to the

contract. When this is not possible, a detailed description of the terms of the documents should be

included in the contract. This description should include the dollar amount, interest rate, payment

schedule, maturity date, whether or not the loan can be prepaid without penalty, whether the note is to be

recourse or nonrecourse, whether the guaranty is limited or unlimited, whether the deed of trust will be a

first deed of trust or in some other priority position, what sorts of covenants will be required for

insurance, rebuilding upon casualty, split of the award in the case of eminent domain, etc. All of these

terms are negotiable and should be finalized before the contract is signed. The failure to do so may result

in a failed sale.

If you represent a seller who is financing all or even a portion of the sale, don’t forget to obtain a

lender’s policy of title insurance for your client, to give him the same protection a commercial lender

would insist on. If the buyer is getting an owner’s policy, a lender’s policy qualifies for a “simultaneous

issue rate” and costs about $25. This cost is usually allocated to the buyer/borrower.

8. DESCRIPTION OF THE PROPERTY TO BE SOLD

8.1 Legal Description. The general rule is that a description of real property contained in a

deed or instrument of conveyance is sufficient if a competent surveyor can locate the land on the ground.

Weber v. Johannes, 673 S.W.2d 454, 458 (Mo.App. S.D. 1984). But a contract is not a deed or

instrument of conveyance, and a description in a contract may be sufficient if the property can be

“identified”. The parties may only have a street address or a rough description of a portion of a seller’s

existing tract. If a street address is given, an effort should be made to obtain the legal description by

contacting the tax assessor. (See earlier discussion in Section 4.1.) If only a portion of an existing tract is

being sold, the contract should require that a survey be completed to create a legal description for use in

the deed. Care should be taken to ascertain whether or not a city or county ordinance exists requiring the

property to be re-subdivided with formal approval of the new subdivision by the city or county’s

governing board. This procedure is not only expensive, but time consuming. In the event this will be

required, the contract should allocate both the cost and responsibility for the re-subdivision.

The buyer’s attorney should make every effort to obtain a correct description so as to

allow for specific enforcement should the seller renege. Although the cryptic contract described in Ray v.

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Wooster, 270 S.W.2d 743, 751 (Mo. 1954) (discussed in Section 2), was enforced, as was a contract

describing “seller’s farm” in Seabaugh v. Sailer, 679 S.W.2d 924, 926 (Mo.App. E.D. 1984) (also

discussed in Section 2), prospective buyers are not always so lucky. For example, see Rone v. Reeves, 20

S.W.3d 526 (Mo.App. S.D. 2000). In that case, a buyer was not able to specifically enforce a contract for

the sale of approximately 834 acres involving 8 separate farms described by section, township, range,

acreage and county. Evidence produced at trial established that seller owned more land in some sections

and townships than described in the contract and had only a partial ownership interest in some of the

tracts described. These discrepancies resulted in the contract being not sufficiently specific to be

enforced.

The seller’s attorney should also be very careful to ensure that the seller is protected

against an obligation to sell more property than truly intended. Although the parties may be in a hurry to

get the contract finalized and signed, it’s always better to take the time necessary to pin down an accurate

description for what is being sold.

8.2 Survey. Sometimes a survey must be done in order to create a legal description. If the

parties know what property is to be sold, a map or diagram can be used and attached to the contract:

All that certain parcel of unimproved land, lying and being situated in the County of Cape

Girardeau, State of Missouri, being more particularly described as approximately 55.12

acres consisting of 2 tracts, one tract comprising 24.16 acres, more or less, and one tract

comprising 30.96 acres, more or less, in Sections 16, 17 and 21, Township 33 North,

Range 11 East, Cape Girardeau County, Missouri, as shown generally on the map

attached hereto as Exhibit A and incorporated herein by reference, with the exact legal

description to be determined after completion the Survey as set out in paragraph 4 of this

Agreement.

A survey is also recommended in cases where the existing legal description is outdated. If the description

uses chains and rods (instead of feet) and trees as landmarks, it can still be used to convey title, but better

practice is to obtain a survey to create an updated accurate legal description. In the event a new

description is obtained, it is important to link the new and old descriptions together in the chain of title.

One way to do this is to include both descriptions in the conveyance deed as follows:

[original description as used on deed] followed by:

ALSO DESCRIBED AS FOLLOWS according to survey prepared by [name], Mo.

R.L.S. No. ##, dated [date], Project No. ##, to wit:

Sometimes attorneys for sellers are reluctant to let their client sign a deed using a legal description that

differs from the description used in the client’s acquisition deed. In this case, a second option is for the

seller to use the original description in the warranty deed, and then also provide a quit claim deed using

the new legal description prepared by the survey. Either method will work, as they both tie the two legal

descriptions together. In order to completely protect the buyer, a “Same as Survey” endorsement ( ALTA

Form 25-06) should be obtained. (See Section 10.4 herein for additional discussion relating to surveys.)

8.3 Personal Property. If any personal property is to be included in the sale, it should be

spelled out in the contract. In residential contracts, these items may include window treatments;

moveable, non-fixture appliances such as a refrigerator or washer and dryer; and perhaps large items in

the basement like tool benches or a deep freezer that the seller does not want to bother with moving. In

commercial contracts, the type of personal property will vary, depending on the type of real property

involved, and can be a significant part of the transaction (for example, the sale of a restaurant or

hotel/motel property). In that case, the contract should contain two important provisions:

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allocate a portion of the purchase price to the personal property; and

require the seller to sign a bill of sale at closing.

To determine the proper allocation of the purchase price between the real and personal

property, it is often necessary to consult with your client’s accountant, whether you represent the seller or

the buyer, since the personal property may have been depreciated by the seller already, and the buyer will

want to be able to depreciate its value for tax purposes after closing. If your client is audited by the IRS

in the future, an allocation of the value of the personal property purchased or sold will be very valuable.

The proposed bill of sale should be negotiated as part of the contract negotiations and

attached to the contract as an exhibit. Thought should be given to whether or not it will include a warranty

of title (not only as to ownership, but as to the existence of any liens) and whether or not it will include a

warranty of condition, or transfer the property ‘as is’.

9. CLOSING DATE

A well drafted contract should always include a closing date. The date can be chosen as a fixed

date (“on or before Dec. 1, 2014”) or tied to other dates or events (“within 6 months after the Effective

Date of this Agreement” or “within 30 days after all Contingencies have been satisfied or waived”).

Always make sure the closing date is “do-able”. For example, if the contract is signed on October 1 and

gives the buyer a 120 day due diligence period, a fixed closing date of December 31 is impossible to

meet. A common mistake is to require closing to occur within ‘X’ days after ALL contingencies have

been satisfied, with the contingency periods for obtaining the survey, re-subdivision approval and the title

work being the same length. The problem with this is that the survey must be done first before the re-

subdividing process and possibly the title work can even begin, so the closing date should be far enough

out to allow time for everything to be properly completed. The contract should also state that “time is of

the essence”, or else nonperformance on a certain date might not lead to a right to legally enforce the

contract against the nonperforming party. Consider the following provision:

The “Closing” shall mean the exchange of the deed for the Purchase Price. The Closing

shall be conducted by mail through the Escrow Agent or at such offices and in such

manner as the parties may mutually agree. The Closing shall be held on a date after all of

the conditions set forth in Article 3 have been either satisfied or waived by the party

entitled to waive any such condition (the date as of which said satisfaction or waiver has

occurred being referred to herein as the "Contingency Date"), but in no event later than

January 10, 2012 (the "Outside Date"). Time shall be of the essence with respect to a

Closing by the Buyer on the Outside Date. The date on which the Closing actually

occurs is referred to herein as the Closing Date.

Frequently, one or both of the parties want to close ‘yesterday’. However, setting an unrealistic

closing date can not only be imprudent, requiring time and expense for preparing an amendment to extend

the closing date, but could be dangerous since the contract “dies” if not closed or extended by the closing

date if the contract states that “time is of the essence”. In commercial transactions, a buyer’s attorney

frequently needs to slow the client down to ensure that the proper due diligence is performed prior to

closing. Your client will thank you later if issues are discovered and addressed prior to closing.

10. CONTINGENCIES, CONDITIONS AND BUYER’S DUE DILIGENCE

10.1 Purpose. Rarely does a real estate contract obligate a buyer to close without giving the

buyer the opportunity to examine certain characteristics of the property and confirm that they are

satisfactory. Most commercial real estate contracts will allow the buyer to terminate the contract and

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receive a refund of the earnest money in the event the contingencies are not satisfied. From the buyer’s

perspective, contingencies are important for several reasons:

1. The buyer wants to confirm that his initial economic assumptions are correct – that the

purchase price is appropriate for the property. Is the site suitable for his development? Will the

property generate the cash flow he needs? Will the operating and capital expenses of the property

allow for the profit he wants?

2. The buyer wants to confirm that the property will not only suit his needs, but will be

capable of being sold in the future, taking into account third party interests – if there are existing

leases, what kind of monetary obligations do they impose on the landlord? Will any required

consents or approvals impair the ability to operate on the property? Will the use or development

restrictions make the property unattractive to future buyers when compared with other

commercial properties?

3. The buyer wants to identify and address all problems with the property prior to closing

rather than rely solely on a seller’s representations and warranties.

Some contracts describe all contingencies as “due diligence” and some limit that term to

inspections (title, survey, environmental, financial, etc.) and put other contingencies (such as sufficient

financing, proper zoning, regulatory permits, and other matters tied to the buyer’s use of the property

rather than the property itself) in a separate section. Either way will work. Different attorneys have

different preferences for structuring contracts, but it is the substance, not the form, that is important.

10.2 Timing and Scope. The seller and buyer have conflicting interests when it comes to

contingencies and due diligence provisions. These items benefit the buyer, so the seller will want to

keep them to a minimum and make the time period for conducting them as short as possible. In a seller’s

market, a buyer may sometimes have to compromise in these areas. Sellers usually insist on a strict

deadline for giving notice of any disapproval, with a provision providing that the contingency will be

deemed to be waived unless a notice of disapproval is received by the end of the contingency period.

Once the contingency/due diligence period expires, the earnest money should become non-refundable

(sometimes referred to as the contract “going hard”) unless there is a casualty loss, condemnation, or

other non-contingency event that provides for the money to be returned to the buyer. Although buyers

typically want the contingency/due diligence period to be longer than what the seller may suggest, buyers

often have their own reasons for wanting the process to be expedited.

It is imperative for a buyer’s attorney to carefully define the scope of any and all

contingencies and the time needed to perform to complete them, taking into consideration the priorities of

the client. The attorney should discuss in detail with the client the plans he has for the property, and

determine what needs to be done based on that conversation. Additional parties will almost always need

to be hired – a title company, surveyor, engineer, architect, environmental consultant, financial analyst,

etc. These parties’ availability and the time it will take them to do their job should be considered before a

time period is agreed upon for the contingencies. For example, if a Phase I Environmental Assessment

must be completed in less than 30 days, your client is likely to be charged an extra fee for having that

expedited. Additionally, the client may have an established relationship with one or more of these parties,

and insist on using them. The surveyor your client wants to use may not be available to even start the

project for 30 days, and need another 30 days to complete it. If the buyer is obtaining a loan, the lender’s

underwriting and closing requirements should always be considered. It could take 60-90 days or longer to

obtain the commercial loan your client needs.

It is not uncommon for a seller to offer (or to agree if requested by the buyer) to share

any information it has regarding the property, such as its existing title policy, survey, environmental

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report, etc., provided that such information is kept confidential. Although these can be very helpful, they

are not a substitute for the buyer’s due diligence. All of them should be updated and certified to the

buyer, otherwise there is no privity and your client has no legal right to rely on them. The following

provision, or something similar, is commonly used:

SELLER INFORMATION. Within 10 days after the Date of this Agreement, Seller

shall provide Buyer with copies of all information in Seller’s possession or under Seller’s

reasonable control that may assist Buyer in its inspection and evaluation of the Property,

including without limitation title policies, surveys, maps, site plans, construction

specifications, blueprints, architects’ renderings, utility plans, construction permits,

zoning or land use permits, engineering studies/reports, geotechnical studies/reports,

environmental studies/reports, soil tests, marketing surveys and/or any other data relating

to the Property This Agreement and all documents and information furnished by Seller to

Buyer pursuant to this Agreement or obtained by Buyer in the course of its investigation

of the Property shall be treated as confidential information. Prior to Closing (or at any

point in the event this Agreement is terminated), Buyer shall not disclose such

information to any other person or entity, except for Buyer’s attorneys and consultants. If

the Closing does not occur for any reason, then Buyer shall send all documents provided

by Seller (and all copies thereof) or obtained by Buyer in the course of its investigation to

Seller within five (5) days after termination this Agreement.

If the property is subject to existing leases, it is imperative that those be reviewed and the

client may want a separate contingency to deal with it. Even though the sale will be subject to the leases,

a well written contract will provide for the leases to be assigned at Closing, deal with the transfer of

Security Deposits, and require estoppel certificates from the tenants, selling landlord, or both. The

following provision deals with all these issues:

LEASES. Seller shall, within five (5) days after execution of this Agreement, provide to

Buyer all relevant information relating to existing tenancies for the Property, including,

but not limited to, copies of all current leases and a rental history for each existing tenant.

Buyer shall, within the Due Diligence Period, notify Seller if any existing lease or tenant is

unsatisfactory to Buyer, in Buyer’s sole discretion, at which point, this Agreement shall

become null and void and Buyer’s Earnest Money shall be returned to Buyer. In the event

Buyer does not elect to terminate this Agreement, any rent collected and received by Seller

shall be prorated between Buyer and Seller at Closing such that Seller shall be entitled to

any rent up to and including the day of Closing, and Buyer shall be entitled to any rent

thereafter. Seller shall be responsible for collecting any rent due prior to Closing.

Security Deposits, if any, shall be transferred to the Buyer at Closing. All leases will be

assigned to Buyer and written assignments delivered at Closing. At Closing, written

estoppel certificates signed by the landlord and each tenant in possession, to be prepared

by Seller’s attorney, shall be delivered, certifying to Buyer (i) that the lease attached

thereto represents the entire agreement between the parties with respect to the space

described therein; (ii) that the lease is in full force and effect, has not been assigned,

modified, supplemented, or amended in any way except as described therein; (iii) that as

of the date specified, none of the parties to the lease is in default, and no fact or

circumstance exists which, with the passage of time or giving of notice, could result in

default; (iv) to the best knowledge of the each party, there are no existing defenses or

offsets against the enforcement of the lease by the other party thereto; (v) that rentals

under the lease have been paid to the date specified; and (vi) that each party understands

that Buyer is relying on the Estoppel Certificate in connection with its purchase of the

Property. At or immediately following Closing, Seller shall prepare letters to each tenant

notifying the tenants of transfer of title to Buyer and directing that all future rent payments

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are to be made to Buyer.

Some due diligence items require the examiner to actually physically enter onto the

property (surveys, environmental assessments, structural and systems inspections, soil or geological

testing, etc.) Therefore, the contract should give the buyer and its agents a specific license or permission

to enter the property for the purpose of performing these inspections. The seller’s attorney typically

requires (and should require) that the buyer be required to notify the seller (or its tenants) prior to entering

the property, and indemnify the seller for any damage caused during the inspections, to ensure that they

are done carefully and professionally. For example:

ACCESS TO PROPERTY. Buyer shall have reasonable access to the Property, upon

reasonable notice to Seller, in order to perform its Due Diligence and physical inspection of

the Property in order to determine if the Property is satisfactory for Buyer’s purpose, in

Buyer's sole discretion; provided, however, that Buyer shall not allow any mechanic’s lien or

other lien, charge or order for the payment of money to be filed against the Property and shall

defend, indemnify and save harmless Seller against and from all claims, damages, liabilities,

penalties, costs, interest charges and expenses (including reasonable attorney’s fees and court

costs), resulting therefrom, and from any damage or injury caused by such inspections.

Buyer shall not cause any damage to the Property, and in the event of any damage does occur,

Buyer agrees to promptly restore the Property to its condition prior to such tests and

inspections. Buyer’s obligations hereunder shall survive the Closing of the transaction

contemplated under this Agreement and/or the termination of this Agreement. Buyer agrees

that it will not interfere with any party currently using the Property when conducting its Due

Diligence review of the Property.

10.3 Title Review and Title Insurance. The issue of title insurance is of critical importance –

so much so that another entire section of this CLE is dedicated to it. In general, attorneys should be

careful to select a reputable title company that writes insurance through a national, respected insurer. The

buyer’s attorney should review not only the exceptions shown on Schedule B of the commitment, but the

underlying documents described in those exceptions. There could be development agreements, CC&Rs

(covenants, conditions and restrictions) or reciprocal easement agreements that conflict with the buyer’s

planned development or use. There could also be monetary obligations that the buyer wasn’t aware of,

such as assessments to special districts (water and sewer districts, neighborhood improvement districts

“NIDs”, community improvement districts “CIDs”, special business districts, etc.) The buyer’s attorney

should also confirm that the title policy covers all of the property being acquired. If the property does not

front on a public road and an easement is used to access the property, the title policy should insure the

easement. This will require an examination of the title to the servient tract (the property the easement

crosses) and a corresponding charge for that search, but it is extremely important that this be done.

Finally, the buyer’s attorney should consider obtaining “extended coverage” by having the standard

exceptions removed and adding special endorsements, many of which will require a survey to be

performed.

10.4 Survey. From the buyer’s standing, it is always a good idea to get a survey of the

property being purchased, even if the property is in a platted subdivision with a “lot and block”

description, and especially if the property is not in a platted subdivision and contains a “metes and

bounds” description. There are several types of surveys but these are the ones you need to know:

1. “Real Property Report” a/k/a “Mortgage Inspection Report” a/k/a “Spot Survey”.

This type is survey is the cheapest and easiest to obtain, and is primarily used by lenders. It

should NEVER be used in commercial purchase, because all it does is verify that the

improvements are located within the boundaries of the property as described in the deed or

subdivision plat.

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2. “Property Boundary Survey”. This type of survey is made in accordance with the

“Minimum Standards for Property Boundary Surveys” established by the Missouri Department of

Natural Resources, which are set out in 10 CSR 30-2.101 et seq. It can be relied on to show the

boundaries of the property and the land area within those boundaries. However, it will not show

any easements or the existence of any improvements located within the boundaries.

3. “ALTA/ASCM Land Title Survey”. This is the best and most comprehensive survey

available, and is typically used in commercial transactions. It is also the most expensive type of

survey available, and not all surveyors are qualified to perform it. The “Minimum Standard

Detail Requirements” (2011) are established by the American Land Title Association (ALTA)

and the American Congress on Surveying and Mapping (ACSM) and can be found at

www.alta.org/forms/download.cfm?formID=338&type=word. When this type of survey is

ordered, the request must include the form “Table A” (included in the Minimum Standards) and

specify on that form which items are desired.

4. “Property Boundary Survey Plus”. If a client doesn’t want to spend the money

required to obtain an ALTA survey, a good alternative is to obtain a Property Boundary Survey

that also shows the location of all improvements and easements. Although title companies may

not accept this kind of survey to give extended coverage and survey-related endorsements, it can

be very useful. The Minimum Standards for Property Boundary Surveys specifically authorize

the surveyor to locate improvements and easements, if requested by the client, pursuant to 10

CSR 30-2.110.

The buyer’s attorney should check with the title company issuing the owners policy of

title insurance to see what kind of survey will be required to remove the exception for “matters disclosed

by an accurate survey”. For commercial transactions, an ALTA/ACSM survey will almost always be

required. The buyer’s attorney must decide which optional items (‘Table A’) are to be included at the

time the survey is ordered. If the right options are requested, the survey will show not only the

boundaries and area of the property, but all improvements on the property, utilities, set back requirements,

encroachments either by others onto the property being purchased or by the improvements being

purchased onto adjacent properties. If a substantial price is being paid for the property, the cost of this

type of survey is well worth it. Always ask your surveyor if he is familiar with the ALTA survey

standards (Has he done them? How many?). In rural areas, not all surveyors will be familiar with this

type of survey, and if you need help locating a qualified surveyor, the title company handling your

transaction should be able to refer you to someone. If the local office can’t help, either contact the

national office or ask your local agent to contact them for a referral.

If you are not trying to remove any exceptions that require an ALTA survey, or if a buyer

doesn’t want to pay for an ALTA survey, a boundary survey should be obtained. The standards and

proper certification for boundary surveys can be found at www.missourisurveyor.org. In addition to

showing the minimum required items, most surveyors are glad to work with a client to show any specific

items of interest on the survey. At the least, the buyer should ask that all improvements be located and

shown. Many times a part of the parking lot or even the building itself may encroach onto an adjacent

property, or worse, a neighbor’s parking lot or building may encroach onto the property your client is

buying. Discovering these problems prior to closing allows the buyer to ask the seller to fix the problem,

and may even cause a buyer to terminate the contract. Other items to include on a “boundary plus” or

“enhanced boundary” survey will depend on the property. Always check the exceptions listed on

Schedule B of the title commitment. If there are existing easements, it is a good idea to have the surveyor

locate them on the survey.

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Learning how to carefully review a survey is an art that comes with experience. Besides

thoroughly going over the plat drawing, legal description, legend, and notes, the certification should

always be examined to confirm that the survey is certified to the right parties. If the buyer’s attorney

orders the survey, it might be certified to the attorney instead of to the buyer. If the lender’s underwriting

or closing requirements include a survey, the survey should also be certified to the lender. In order to get

the standard survey exception deleted from the final owner’s policy and to obtain certain special

endorsements, the survey should also be certified to both the local and national title company. The

language in the certification itself will vary depending on whether it is an ALTA survey or a boundary

survey. The buyer’s attorney should become familiar with both types and confirm that the surveyor’s

certification has been done properly.

10.5 Other Due Diligence Items. Other items to include on a buyer’s due diligence checklist

include the following:

Environmental investigations (these are very important, but beyond the scope of this

presentation; I Mo. Environmental Law (CLE), §§5.9-5.55 (MoBar 2d ed. 1998) is

highly recommended)

Engineering tests; soils, seismic and geological inspections

Zoning, building code and other regulatory compliance, including parking requirements

Transfer of Special Use Permit

Architectural investigations

Structural and systems (HVAC, plumbing, electrical) inspections

Availability of public utilities

10.6 Other Conditions to Closing. The buyer may also need to include other conditions to

closing in the contract. Again, these will vary depending on the buyer, his intended use, and the property

itself, but items a buyer’s attorney should address with his or her client include the following:

Financing

Appraisal

Economic incentives (grants or tax abatements)

Entering into a lease agreement with a certain tenant

Approval of buyer’s board of directors

Approval of any franchisor

Similarly, occasionally a seller’s obligation to close may need to be conditioned on

certain things, including:

Approval of its board of directors

Court approval (if the sale occurs during a pending probate administration)

Location of replacement property in connection with a “like kind” (IRS §1031) exchange

11. RISK OF LOSS BEFORE CLOSING

Under Missouri law, if the improvements constitute a substantial portion of the property value,

the contract is no longer binding if a loss occurs between the date the contract is signed and the closing

date. Skelly Oil Co. v. Ashmore, 365 S.W.2d 582, 588 (Mo. 1963). However, most real estate contracts

dealing with improved property include a casualty destruction provision, and it is always better to spell

things out. Typically, the seller must maintain casualty insurance prior to closing, and in the event of a

loss prior to closing, the buyer has the option to either (a) terminate the contract and receive a refund of

its earnest money; or (b) agree to purchase anyway and receive an assignment of the seller’s insurance

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proceeds. From the seller’s standpoint, it is a good idea to include language stating that the buyer does

not have the option to terminate the contract in the event of minor damage, which must be defined with a

dollar value and will depend on the value of the improvements. In that event, the buyer should insist that

the seller either pay for the estimated cost of repair (leaving the actual repair up to the buyer, who has a

better incentive to do it right) or reduce the purchase price by the amount of the estimated repair.

12. CONDEMNATION BEFORE CLOSING

If the property is condemned in its entirety before closing, the contract will be unenforceable

because the seller no longer has anything to sell and thus cannot deliver marketable title. However, it is

good practice to spell out in the contract that the buyer is relieved of its obligation to purchase and the

earnest money is refunded if the property is totally or “substantially” condemned. What constitutes a

substantial taking? Usually it is defined as a taking which materially affects the buyer’s intended use of

the property. If any part of the improvements on the property are taken, that should be considered a

‘substantial’ taking unless the buyer intends to demolish and rebuild anyway. In that case, it may depend

on how much of the available land will be left to develop. In many cases, a property’s parking lot is

critical to the use of the building, and in those cases, a taking of a specific percentage of the parking area

should be included in the definition of substantial. The contract should also take into account the parties’

desires if a small or non-material condemnation occurs. Although the chances of condemnation occurring

between the time the contract is signed and the time of closing is small, the buyer should protect itself by

including a written representation in the contract that the seller has no knowledge of any pending or

threatened condemnation as of the date the contract is signed.

13. CLOSING

13.1 Conveyance Deed. A real estate closing in its most basic sense is the exchange of the

purchase price for a deed to the property. The contract should describe the type of deed that the seller

must execute and deliver to the buyer. The contract should also state that the required deed will convey

the property free and clear of all liens and encumbrances except those specifically agreed to by buyer

(usually defined in the contract as “Permitted Exceptions”).

From the buyer’s standpoint, a General Warranty Deed is the best and most desirable

deed to receive, since it includes all the warranties of title set out in RSMo §442.420, conveys after-

acquired title (See, RSMo §442.430), and title companies will always insure it. NOTE: the conveyance

deed is typically signed only by the seller, except in the City of St. Louis where local ordinance requires

both the grantor and grantee to sign it.

A Special Warranty Deed limits the warranties such that the grantor does not warrant

that he has or can convey good title, but covenants that the premises are free and clear from any

encumbrances done or suffered by the grantor (but not those under whom the grantor claims), and

covenants to warrant and defend the title against the lawful claims and demands of all persons claiming

under the grantor (rather than claims and demands of all persons). (See, Bogy v. Schoab, 13 Mo. 365

(1850)). Special Warranty Deeds are customarily given by executors, administrators, guardians and

trustees, all of whom act in a fiduciary capacity. Banks may also use Special Warranty Deeds to convey

properties purchased at foreclosure sale. Title insurance companies will usually insure a Special

Warranty Deed in these situations. It is also becoming common practice for national corporations to

insist on conveying by Special Warranty Deed, even when title was acquired by General Warranty Deed.

A buyer’s attorney should either check with the title company to confirm that it will insure this type of

deed before agreeing to accept it, or add a provision in the contract stating that it will be accepted

provided the title insurance company will agree to insure it.

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A Quit Claim Deed is the lowest and least desirable form of deed, and title companies

will typically not insure such a deed, so a buyer should never agree to pay good money for a quit claim

deed. An exception to this rule exists for old railroad properties owned in fee by railroad companies.

When the tracks are pulled up and the line has been officially abandoned by the Interstate Commerce

Commission, the railroad company will sell the land for fair market value and only provide a quit claim

deed. Title insurance companies are familiar with this practice and will insure the title in this situation.

13.2 Other Closing Documents. Next to the deed, the most critical closing document is the

settlement statement (a/k/a closing statement). The contract should designate who will prepare it

(almost always the title company handling the closing) and require that it be signed by both parties.

However, most title companies will only provide the buyer and seller and their respective attorneys with a

copy of that party’s ‘side’ of it, unless the other party agrees to allow a copy of its side to be given to the

other party. In commercial transactions where the expenses may be shared or apportioned between the

parties, it can be difficult to confirm that your client is being charged the proper amount unless you see

both sides of the statement. Therefore, it is a good idea to include a provision in the contract stating that

both parties may examine and be provided with a copy of the full and complete closing statement.

Additionally, each party may be required to deliver or execute certain documents, either

because they are required under the terms of the contract, or because they are required by the title

company. A well drafted real estate contract will set these out in clear and concise terms. They may

include:

Seller’s Affidavit, FIRPTA, and any other documents required by the Title Company

(such as agreement to accept tax pro-ration based on last year’s tax bill, proof of

corporate or LLC existence, copy of partnership agreement, trust, etc.)

Corporate or member resolutions authorizing the sale of the property

Bill of Sale (for personal property)

Assignment of Lease

Estoppel Certificates from tenants

13.3 Costs, Adjustments and Purchase Price. At closing, the buyer must pay the purchase

price, adjusted by any items prorated as of the date of closing. Almost all real estate contracts call for real

estate taxes for the year of closing to be prorated, and if there are existing leases, rent for the month of

closing must also be prorated. Occasionally there will be other payments or income tied the property that

should be prorated, such as annual fees for the use of a shared water well or private road maintenance

fees. All of these items should be set out in the contract so that it is clear whether such items are pre-paid

(requiring a charge to the buyer and credit to the seller) or paid in arrears (requiring a charge to the seller,

and credit to the buyer).

Additionally, closing expenses such as recording fees, escrow or closing fees, title

insurance (search, commitment and policy premiums), attorneys fees, and the cost of the survey,

environmental and property inspections, etc. are usually paid at closing. Although it was common years

ago for a real estate contract to provide that these items would be allocated “in accordance with local

custom,” this type of provision should be avoided today, especially in commercial transactions, since who

pays for these items is usually negotiated and there is no “local custom”.

When negotiating these items, keep in mind that anything is possible, but the ultimate

breakdown will usually be tied to the circumstances surrounding the sale. Some sellers take the position

that they are selling the property ‘as is’ and if the buyer wants anything, such as title insurance, survey,

etc., the buyer must pay for it. In a seller’s market a seller may be able to successfully do this. The

opposite situation may arise if the seller is desperate to sell and the property has been on the market for a

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long time. Usually the allocation of expenses winds up being split to some degree. For example, it is

common for a seller to pay for the title commitment (which usually includes the charge for the title

search) but not the policy premium (which is based on the purchase price); the buyer then pays the

premium charges. Or, the seller might pay for the survey (especially if he already has one and uses the

same surveyor so that he’s only charged for an update) and the buyer will pay for the title insurance, or

vice-versa. It is still customary for the buyer to pay to record the conveyance deed and any deed of trust

given to the buyer’s lender, and the seller to pay to record anything necessary to clear the title, such as a

deed of release, affidavit, etc.

Sometimes a client will want to pay his expenses outside of closing (i.e., directly to the

provider.) Unless there are compelling reasons for doing it this way, it is better to pay them at closing for

two reasons. First, by paying them at closing, they will be shown on the closing statement. This gives

you, your client, and your client’s accountant a handy reference for all expenses related to the transaction.

Second, you know that everyone has been paid and don’t have to worry about getting a phone call a

month later from a professional that you may have hired wanting to know where his money is or, even

worse for a buyer’s attorney, have to deal with a mechanic’s lien filed against the property. If you make

a practice of paying third party providers at closing, real estate professionals that you deal with regularly

(surveyors, environmental companies, etc.) will give you great service knowing that they are assured of

getting paid at closing.

13.4 Real Estate Commissions. If a there are any real estate brokers who will be entitled to a

commission, the contract should include a representation from each party as to the broker involved and

set out who will pay the commission (usually but not always the seller) and include an indemnity by

each party against claims from the other party’s broker. If no real estate brokers are involved, then

mutual representations and indemnification provisions should be inserted in the contract to protect

each party from unforeseen claims. For example:

REAL ESTATE AGENTS AND COMMISSION. No real estate commissions are due

to any real estate broker other than [name] (“Broker”). Seller and Buyer hereby

acknowledge, represent and warrant that, with the exception of Broker, neither has

engaged or otherwise employed any brokers or finders, the employment or engagement

of whom would result in the other party hereto having any additional duty or obligation

with respect thereto. In addition, Buyer and Seller agree to indemnify and hold each

other harmless from any and all claims of brokers, consultants or real estate agents by,

through or under the indemnifying party for fees or commissions arising out of the sale of

the Property to Buyer.

14. TRANSFER OF POSSESSION.

14.1 When. The contract should state when possession will be delivered to the buyer. The

best procedure is for possession to be transferred at closing. Transferring possession before or after

closing can open up either party to substantial additional legal issues, and is best avoided if at all possible.

Residential contracts typically require the seller to provide all keys and garage door openers to the buyer

at closing, and commercial contracts may also provide for the delivery of keys or other items. Remember

that if the property has existing tenants, the contract should not provide that “full possession” will be

delivered and, instead, should provide for possession, subject to the rights of existing tenants, will be

delivered at closing.

14.2 Condition. The contract should require the seller to deliver the property to buyer in the

same condition it was in when the contract was executed, ordinary wear and tear excepted, unless the

Seller has agreed to make a repair of some kind. Sellers will also frequently want to provide that the

property will be delivered “AS IS”. Keep in mind that despite such language, Missouri law requires a

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seller to disclose known, hidden defects. See, Reeves v. Keesler, 921 S.W.2d 16, 21 (Mo.App. 1996);

Hess v. Chase Manhattan Bank, USA, N.A., 220 S.W.3d 758, 765 (Mo. banc 2007).

14.3 Insurance. The seller’s attorney should instruct his client to cancel his property

insurance effective as of the closing date, since the seller no longer has an insurable interest in the

property. Likewise, the buyer’s attorney should make sure his client has an insurance binder in place

prior to closing so there will be no gap in coverage.

15. RIGHT OF ASSIGNMENT

In general, the buyer has the right to assign its rights in a contract to any other buyer absent

specific contractual language negating this right. But the seller may have many reasons for restricting

assignments. For instance, if the seller is providing seller financing for the transaction, the

creditworthiness of the potential buyer is an important consideration. If there are complex contingencies,

such as regulatory approvals, economic or tax incentives, etc., the seller may be counting on the buyer’s

experience and expertise and not agree to an assignment to a less experienced developer who may not be

able to satisfy all conditions of closing.

Given these concerns, it is common to insert a clause prohibiting the buyer from assigning the

contract without the express written consent of the seller. Whether the consent must be reasonable or

at seller’s sole discretion is a matter of negotiation. If the seller proposes this kind of restriction, the

buyer can usually negotiate the right to assign the contract to a “related party”, which should then be

defined. A commonly used definition includes an entity owned or controlled by buyer, or under common

ownership or control with buyer, or a trust for which the buyer is the sole beneficiary. Whether the seller

will release the original buyer from its obligations is also a matter of negotiation. A buyer who intends to

set up a new entity to take title to the property should make the seller aware of this at the earliest stage so

that these issues can be addressed. The following provision is typical:

ASSIGNMENT. It is agreed that Buyer shall have the right to assign its interest in this

Agreement to a related person or entity (an individual, corporation, limited liability

company, partnership or other such entity which, directly or indirectly, is in control of, is

controlled by, or is under common control with Buyer) at the option of Buyer. Buyer

may not assign its interest in this Agreement to any other party without Sellers’ consent,

which [shall not be unreasonably withheld OR may be withheld in Seller’s sole

discretion].

16. REPRESENTATIONS AND WARRANTIES

The buyer’s attorney should always negotiate the inclusion of certain representations and

warranties from the seller in connection with the transaction. Many times sellers will object, wanting the

buyer to rely on its own due diligence. However, a persuasive attorney can usually get even the most

stubborn seller’s attorney to agree to certain items that are seemingly implied (although they aren’t) or the

seller wouldn’t be selling the property. These include:

The seller’s legal status, and if an entity, duly organized, and in good standing

Authority or capacity to execute the contract

The execution, delivery and performance of the contract does not conflict with any

instruments or agreements to which seller is a party, or any judgment, decree, writ, order,

rule, or regulation to which seller is subject

No knowledge of any pending or prospective condemnation affecting the property

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No knowledge of any pending or presently contemplated public improvements which will

adversely affect the property

No knowledge of any violations of any applicable law, ordinance, rule, regulation or

order against or affecting the property

No knowledge of any litigation or other proceeding pertaining to the property

No knowledge of any existing, presently pending, or threatened actions, suits or

proceedings affecting the property

No knowledge of any pending but uncertified, unsatisfied, unconfirmed or unrecorded

special assessment which, when certified ratified or confirmed would result in a lien

against the property

All water, sewer, gas, electricity, telephone and other utilities serving the Property are

supplied directly to the Property by facilities of public utilities and are adequate for the

full operation of the business as presently conducted

Seller has not made any special arrangements with any of the utility providers and pays

the usual and customary charges for such services

The following are items that may be more difficult to get a seller to agree to include in the contract. If the

seller refuses, these can be altered to make them based on the seller’s actual knowledge, in which case a

seller may be willing to include:

To the best of seller’s knowledge, the property is not in any way contaminated with any

hazardous substances, petroleum or petroleum products

To the best of seller’s knowledge, the property is not subject to any federal, state or local

“Superfund” lien, proceedings, claim, liability or action, or the threat or likelihood

thereof, for the clean-up, removal, or remediation of any hazardous substance

To the best of seller’s knowledge, there is no asbestos on the property

To the best of seller’s knowledge, there are no underground storage tanks on the property

To the best of seller’s knowledge, no part of the property has been classified as

“wetlands”

To the best of seller’s knowledge, there have been no past or there are no pending or

threatened claims, complaints, notices or requests for information received by Seller with

respect to any alleged violation of any environmental law or potential liability under any

environmental law

There are no leases or other rights of occupancy for the Property or

The existing leases between seller and seller’s tenants are written leases and that no

tenants are occupying the premises under any month-to-month lease or oral agreement.

All rent due from seller’s tenants is current and there are no existing breaches or defaults

in the leases. Seller has received no notice of termination from any of its tenants and

seller has no knowledge of any intent on the part of its tenants to move out or terminate

their lease any time in the foreseeable future

Seller is the owner in fee simple title to the property, free and clear of all liens,

encumbrances, covenants, conditions, restrictions, options, rights-of-way, and easements

affecting title, except the Permitted Exceptions

There are no reciprocal parking or easement agreements affecting the property

Seller has not granted to any other party the right to acquire the property, no party has

any right to acquire any interest in the property, and there are no adverse or other parties

in possession of the property

No portion of the property is listed on or contained in a F.E.M.A. designated flood hazard

area or floodway, U.S.G.S. designated floodplain, or U.S. Army Corps of Engineers

wetland inventory

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Seller knows of no facts or circumstances which have not been disclosed to buyer, in

writing, and which could impair, impede, or prohibit buyer’s use of the property

Sometimes the only way to get a seller to agree to any reps and warranties is to include some on behalf of

the buyer. Since the buyer doesn’t have the seller’s knowledge of the property, these representations are

usually tied to its status, such as:

The buyer’s legal status, and if an entity, duly organized, and in good standing

Authority or capacity to execute the contract

The execution, delivery and performance of the contract does not conflict with any

instruments or agreements to which buyer is a party, or any judgment, decree, writ, order,

rule, or regulation to which buyer is subject

Generally, these representations and warranties are only good through closing, at which point

they disappear, or “merge into the deed,” unless specifically stated otherwise. If an attorney intends for

the opposing party’s representations and warranties to extend past closing, then a clause must be inserted

stating that the representations and warranties will survive the closing and delivery of the deed. If a seller

balks at this, survival can be limited to a specific time period, such as 5 years, 3 years, or even 1 year after

closing. For example:

SURVIVAL AFTER CLOSING. All of the representations and warranties of Seller set

forth above shall survive the delivery of the Deed; provided, however, that any claim for

breach of such representations and warranties shall be deemed waived unless written

notice of the alleged basis for any such claim is given by Buyer to Seller within [1 year, 5

years, etc.] after the Closing Date. Seller hereby agrees to indemnify Buyer against, and

hold Buyer harmless from, any damage, loss, claim, demand, cost or expense, including

reasonable attorney’s fees, to the extent caused by any breach of Seller’s representations

and warranties, subject to the foregoing limitation.

17. NO FURTHER ENCUMBRANCES

A buyer’s attorney should always include a provision in the contract stating that during the period

between the time the contract is signed and the closing date, the seller is prohibited from entering into any

new license or easement agreements with respect to the property or permitting the property to be

encumbered in any way without buyer's prior written consent. Whether the buyer’s withholding of such

consent must be reasonable or in buyer’s sole discretion is negotiable. For example:

NO ENCUMBRANCE OF PROPERTY. During the time that this Agreement is in

existence, Seller shall not enter into any new license or easement agreements with respect

to the Property which cannot be terminated or cancelled by either Seller or Buyer at

Closing, or consent to the Property being encumbered in anyway (except as required by

applicable law or if same can be terminated by or cancelled by either Seller or Buyer at

Closing), without Buyer's prior written consent. Buyer may give or withhold such

consent at its sole option.

18. DEFAULT AND REMEDIES

A contract without a default provision is simply not a good contract. There are a variety of

reasons for breaching a contract, but regardless of the reason, the other party is almost never happy about

it. In fact, the non-breaching party is usually furious and wants to exact revenge. As discussed in Section

6.1 above, from the seller’s perspective, the best way protect against a breach by the buyer is to require a

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large earnest money deposit that will be forfeited to the seller as liquidated damages. If the buyer has a

large sum of cash at risk, he is less likely to break the contract due to buyer’s remorse or because a better

deal comes up. From the buyer’s perspective, the best protection against a seller’s breach is to retain the

remedy of specific performance. An attorney fees provision coupled with the right to sue for specific

performance can be invaluable when it comes to holding a seller’s feet to the fire. On the other hand, a

seller will not want an attorney fees provision if the seller does not retain the right of specific

performance, since it could only be used against him. And since specific performance is not always an

option (e.g., incurable title defects), the buyer should also include a provision for reimbursement of all

out-of-pocket expenses, including attorneys fees, and a liquidated damages provision equal to the amount

of the earnest money. For example:

DEFAULT.

A. By Buyer. In the event of a default under this Agreement by Buyer,

Seller [may, at Seller’s option, elect to (i) terminate this Agreement by written notice to

Buyer and retain the Earnest Money as liquidated damages and not a penalty, it being

agreed that actual damages are difficult, if not impossible, to ascertain, and, in addition,

Buyer shall pay to Seller an amount equal to all of Seller’s direct, out-of-pocket costs and

expenses arising out of the transactions contemplated by this Agreement including, but

not limited to, those for Seller’s attorney’s fees; or (ii) seek relief in an action for specific

performance, and recover damages suffered by Seller as a result of the delay in the sale

of the Property; provided, however, that an election by Seller to pursue one or the other

of the foregoing remedies shall not preclude Seller from pursuing the other remedy until

full satisfaction shall have been received on the remedy pursued OR shall retain the

Earnest Money as liquidated damages and not a penalty, it being agreed that actual

damages are difficult, if not impossible, to ascertain, and, in addition, Buyer shall pay to

Seller an amount equal to all of Seller’s direct, out-of-pocket costs and expenses arising

out of the transactions contemplated by this Agreement including, but not limited to,

those for Seller’s attorney’s fees, as Seller’s sole remedy, and this Agreement shall

thereafter become null and void.]

B. By Seller. In the event of a default under this Agreement by Seller,

Buyer may, at Buyer’s option, elect to (i) terminate this Agreement by written notice to

Seller, in which event the Earnest Money shall be repaid to Buyer and, in addition, Seller

shall pay to Buyer an amount equal to all of Buyer’s direct, out-of-pocket costs and

expenses arising out of the transactions contemplated by this Agreement including, but

not limited to, those for Buyer’s attorney’s fees; or (ii) seek relief in an action for specific

performance, and recover damages suffered by Buyer as a result of the delay in the

acquisition of the Property; provided, however, that an election by Buyer to pursue one or

the other of the foregoing remedies shall not preclude Buyer from pursuing the other

remedy until full satisfaction shall have been received on the remedy pursued.

C. Waiver of Mutuality. Seller waives any defense of lack of mutuality of

specific performance.

D. Attorney’s Fees. In the event of litigation subsequent to default, the

prevailing party shall be entitled to recover its reasonable attorney’s fees and its litigation

costs, including court costs, from the non-prevailing party, whether or not such litigation

results in a judgment.

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19. TAX FREE EXCHANGE.

When dealing with commercial property, buyers and sellers will frequently use the transaction as

either the first or second leg of a “like kind” exchange pursuant to Internal Revenue Code Section 1031,

which defers the payment of capital gains tax. The following provision allows either side to do this:

1031 TAX FREE EXCHANGE. Both Buyer and Seller acknowledge that either party

may assign this Agreement to a party (the “Qualified Intermediary”) qualified to effect

the exchange of property under Internal Revenue Code Section 1031 (the “1031

Exchange”) and, therefore, time is of the essence. Any such assignment will not release

the assigning party from its obligations under this Agreement, and Seller agrees to

convey the purchased real estate directly to Buyer. Each party shall be responsible for

any and all costs, expenses and fees associated with that party’s 1031 Exchange, and each

party agrees to cooperate with the other party’s Qualified Intermediary pursuant to the

terms of this Agreement, provided, however that the party effectuating a 1031 Exchange

shall be responsible for all costs, fees, and expenses associated with that 1031 Exchange.

20. MISCELLANEOUS PROVISIONS

Most contracts contain additional clauses, many of which are boilerplate, such as:

Notices - correct mailing addresses and delivery addresses (if the mailing address is a

post office box) should be included. It’s also a good idea to require any notice sent to

your client to also be sent to you. And make sure the delivery methods make sense.

Some old clauses still refer only to registered or certified mail. In today’s world, delivery

by overnight delivery service, fax, and even email (with hard copy to follow) are options

that can prove very useful when time is of the essence

Entire Agreement – any prior oral agreements should be superseded

Governing Law/Venue

Amendment – in writing only, signed by all parties

Severability – if any provision is unenforceable it should not affect other provisions

Successors and Assigns – should be binding on them, subject to any restrictions on

assignment of contract

Counterparts – very convenient in today’s world where parties may be in different states

and it’s easier to sign separately

Electronic Signatures – also very convenient in today’s world where signing then

scanning and emailing is easier than having to over-night original signature pages

Business Day – can become extremely important when contract contains timelines for

due diligence items; if end date falls on a weekend or holiday, should go to next business

day

Headings – discussed in Section 3.3 herein

Construction – will be construed against drafter unless parties agree to equal participation

Legal Counsel – always good to have parties acknowledge that they have read and

understand contract and have sought the advice of counsel or knowingly waived the right

to do so

Always review the miscellaneous provisions to make sure they make sense for the particular transaction

you are working on. Sometimes you need to add or delete items.

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21. CONCLUSION

A multitude of checklists are available (MO Practice, AmJur, etc.) and are good to look at to

make sure your contract covers everything that needs to be covered. Although it’s good to develop a

‘form’ for your own use, that is only the beginning. No two deals are exactly alike, and your client is

paying you for your expertise. Even if the client (or other party) complains about the length of the

contract, remember that it’s better to have a provision and not need it, than to need it and not have it.