Advanced commercial real estate law: Seller beware, the contract that doesn’t end

There is a creative children’s song called “The song that doesn’t end,” and through its circular lyrics, according to the song, “it just goes on and on my friend.”  Listen here.

For some unfortunate sellers of real estate (usually commercial real estate), there are contracts that don’t end, either.  They just go on and on, tying up the seller from selling the property to a third party.

There are some unscrupulous buyers who use a form of commercial real estate purchase contract — on retail space, raw land, offices, apartment buildings, warehouses, and various and other sundry commercial properties — that puts the seller in a terrible box.  This form of contract, through some creative and circular language — referencing, for example, 180 days from a date that never occurs– never requires buyer to close, but it also never puts an end to his due diligence period, so neither does he have to terminate.

Thus, forever and ever, under this form of contract, the buyer can sit and wait — preventing seller from selling the property to another party.  This allows the buyer to both (i) without cost, to wait until the property becomes “hot” and then someday sell it at a profit to a third party or (ii) to extort a payment from the seller to just dry up and blow away.

Now, because the buyer never has to perform and never has to terminate, it is likely the contract could be defeated in litigation as unenforceable for lack of consideration.  The problem is that the buyer can tie the matter up in Courts for a year or two even after the seller commits to litigate, at great cost, of course, to the seller.

The net result is the same — the seller can neither shake the buyer nor force him to close.

Thus, seller beware of the contract that doesn’t end.  Read every contract thoroughly before signing.

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