If you’re getting ready to sign a commercial real estate contract in Texas, you may be worried about the possibility of the seller backing out at the last minute. This is a common concern as commercial real estate deals can be very complex and buyers can have a lot at stake. So, it’s always best to be prepared so that you know what a seller can and cannot do and how you can best protect your investment.
Whether this is your first time signing a commercial real estate contract in Texas or you have prior experience, it’s strongly recommended that you get the help of a Texas real estate attorney. At Sewell Sewell Beard LLC, our Texas commercial real estate lawyers are committed to helping our clients navigate commercial real estate contracts. We will help you proceed with confidence and peace of mind while taking the necessary legal precautions to protect yourself. So, keep reading to find out if a seller can back out of a real estate contract in Texas, and if so, what your legal options are.
When a Commercial Real Estate Contract Becomes Legally Binding
When you start the process of buying real estate in Texas, there are two types of commercial documents you will usually create: the letter of intent and a purchase and sale agreement. And to avoid running into commercial property contract dispute issues in Texas, you need to know when this agreement becomes legally binding.
Firstly, a letter of intent, although important, is not a legally binding contract between a buyer and seller. Rather, it starts the process of moving towards a legally binding real estate agreement, ensuring both parties are on the same page. In a way, a letter of intent is a type of rough draft that includes details, such as who the buyer and seller are, the property being sold, the financial terms, etc.
The agreement between the buyer and seller only becomes legally binding when both parties have actually signed the purchase and sale agreement. This is the more relevant document that includes many of the same details as the letter of intent but has gone through more legal fine tuning.
Situations Where a Seller May Be Able to Back Out
As a commercial real estate buyer, a lot can be at stake when you are in the process of making a purchase. That is why you should be aware of the situations where a seller may have the right to back out of this agreement and make sure your purchase and sale agreement is fully understood between the parties and the terms and conditions spelled out in detail..
- Breach of contract: A seller can back out if they believe the buyer has not followed the terms of the contract.
- Contract contingencies: If the contract includes contingency clauses, this can give the seller the right to back out in certain situations. For instance, a buyer may not have followed certain due dates, or title or zoning problems may have come up unexpectedly.
- Mutual termination: Both the seller and buyer may also mutually agree to terminate the contract for any reason.
What Happens if a Seller Wrongfully Backs Out
Although it is true that sellers can occasionally back out of commercial real estate contracts in Texas, this isn’t always allowed. So, if a seller wrongfully backs out of a contract, leaving you in the lurch, you have a few legal options.
One of the most common options buyers have is to file a breach of contract claim. This is often the best option since it applies to most situations where a seller has wrongfully backed out after the contract becomes legally binding. But there are some more specific options that may apply to your situation as well, such as earnest money disputes or specific performance disputes.
How Buyers and Sellers Can Protect Themselves
Even the most thorough commercial real estate deals in Texas can fall through on either side at the last minute. To prevent this from happening, it’s important to both buyers and sellers that you be proactive and plan ahead for different types of possible scenarios.
Here are some practical ways you can create a solid contract that provides protection for everyone involved:
- Include contingency clauses for things like financing, inspection, title and zoning issues.
- Thoroughly document all communication with the other party, to include but not limited to any documents that have been signed.
- Make sure all timelines and notice requirements are clear.
- Most importantly, have a commercial real estate lawyer review the contract before either party signs.
FAQs About Commercial Real Estate Contracts in Texas
Can a seller cancel a commercial real estate contract after signing in Texas?
Yes, but only in very specific circumstances. In general, a real estate contract is not breakable once signed unless the seller has a legally valid reason. For instance, a seller can back out if there is a breach of contract on the purchaser’s part or certain contingency clauses haven’t been met.
What is specific performance in a commercial real estate dispute?
Specific performance is a term used when the court orders one party to perform their contractual obligations as closely as possible to what has already been agreed upon. This is the alternative to requiring them to simply pay for damages as a result of not fulfilling their obligations.
Can a seller keep the buyer’s earnest money deposit?
It depends. Texas law protects buyers if they need to back out for a valid reason, such as a failed inspection or issues securing proper financing. However, if a buyer backs out without a valid reason, the seller may be able to keep all of their earnest money as a form of compensation. The purchase and sale agreement should contain specific language regarding the earnest money deposit and when and if it is refundable or can be kept.
How can buyers reduce the risk of a seller backing out?
Carefully research the buyer before working with them and include the right contingency clauses to prevent last-minute changes. Then make sure you have an experienced commercial real estate attorney review all documents before signing them.
Get the Help of an Experienced Texas Real Estate Attorney
Before you move forward with signing a commercial real estate contract in Texas, you need to seek legal representation. Having an experienced commercial property closing lawyer on your side will help you understand what your rights are and how you can navigate possible seller disputes. Contact Sewell Sewell Beard LLC today by calling our Prosper, Texas, office at 972-777-5390 to discuss your legal needs and goals with one of our experienced commercial real estate attorneys.