What Is A ‘Purchase And Sell’ Agreement?
When to use this agreement and what its limits are.
Purchase and sell sounds simple enough. The legal idea is as well. The purchase element is that a buyer will commit to buying. Likewise, the sell element is that the seller will commit to selling. This could involve property like shares, real estate or a business for example.
Purchase and sell agreement
The complexity of the purchase and sell agreement will vary based on who is using it. It can be as simple as a real estate deal. In contrast the agreement could shift and turn into something like a futures contract. The question behind all of this is why do people use a purchase and sell agreement? Ultimately it stops people pulling out from a sale. Hence, in the case of property it ensures that both parties are committed to buying and selling before they actually set down a contract with prices and payments. Therefore, in a nutshell the agreement is just one person saying they will buy and the other saying they will sell. As a result, to back down from this position would be a breach of the contract.
There are some issues that could arise in the case of agreements and property. If you decide to sell a house through private treaty then there is a five day cooling off period. This means the buyer can decide to change their mind and leave the sale. This cooling off period is after the exchange of contracts, the final point in the sale for the property. If you decide you want to use a purchase and sell agreement it would generally be at a point earlier than this. The cooling off period can be lengthened, but it may also be removed from the contract as well if the parties agree. If you’re unsure about a property and your rights you can check with a property lawyer.
In the share market you could use a purchase and sale agreement. Although, in financial terms there are things called financial instruments which are legal agreements usually about shares (derivatives). This can all too quickly become overwhelming due to the technical jargon. In other words, investors may be more likely to use complex agreements when it comes to purchasing shares. This is especially the case when it comes to future commitments to buy and sell. These come in many forms like futures, options, shorts. What this means for you is that you can use a purchase and sale agreement for shares but you may decide to use a complex agreement instead. This changes based upon a private investment in a small company or trading in the stock market on public companies.
When selling a business there are numerous things to account for. The obvious one is actually securing a buyer for your business. If you have managed to get a potential buyer, you could use a purchase and sale agreement to set in place a future sale. This means both parties are committing to buying and selling in the future.
Have more questions? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.
Justin is a legal intern at Lawpath as part of the content team. He is currently studying a Bachelor of Laws and a Bachelor of Economics at UTS.