American Bar Association Annual Meeting 2011 Toronto The Purchase and Sale Agreement: Negotiating Strategies from a US and International Perspective Saturday, August 6, 2011 8:30 - 10 a.m. Metro Toronto Convention Center Room 715B, 700 Level, MTCC, South Building 255 Front Street West Toronto, ON Canada Speakers: Barbara Gregortatos John Hutmacher Stephen Linde Dan Matsuda Mitchell Meisner Nikolaus Pitkowitz Moderator: Jin Liu R. Terry Carroll II Barbara Gregoratos Joshua M. Kamin Stephen A. Linde Jin Liu 1 Mitchell R. Meisner PURCHASE AND SALE AGREEMENT2 THIS AGREEMENT (this “Agreement”) dated ________, 20__ (the “Effective Date”) by and among _____________, a _____________, (“Seller”); _____________, a ______________, (“Purchaser”); and _____________, a _____________ (“Escrow Agent” or “Title Company”); RECITALS: A. Seller owns a parcel of land in ______, _______ County, ________, with a street address of __________, and commonly referred to as [trade name, if any], which is improved 1 This annotated Purchase and Sale Agreement is prepared by R. Terry Carroll II (King & Spalding LLP, Atlanta, Georgia), Barbara Gregoratos (Jones Day, San Francisco, California), Joshua M. Kamin (King & Spalding LLP, Atlanta, Georgia), Stephen A. Linde (Simone Development Companies, Bronx, New York), Jin Liu (Carlton Fields, P.A., Tampa, Florida), and Mitchell R. Meisner (Honigman Miller Schwartz and Cohn LLP, Detroit, Michigan). 2 An agreement of purchase and sale (or “purchase agreement,” “sale contract,” etc.--the terms are interchangeable) is the standard document governing the contractual relationship between a buyer and seller of real property up to the point when the actual conveyance of title and payment of the price (usually referred to as the “closing”) occurs. In essence, it provides a road map for the pre-sale or pre-closing period. Some provisions of the agreement may also be made to apply after the closing. In a commercial real estate transaction, the purchase agreement is typically heavily negotiated document. Although a contract is formed upon signing, the agreement typically contains a number of interim rights benefiting the parties (especially the buyer) and conditions that need to be satisfied or waived in order to get to the point of closing the sale. These conditions focus especially on allowing the buyer sufficient time and opportunity to evaluate the real estate assets to be purchased, including with respect to physical and environmental condition, economic performance, and status of title and land use rights. Thus, if during the period leading up to the closing the buyer becomes dissatisfied with an aspect of the property, the buyer will usually have the right to decline to proceed with the purchase. Sometimes this situation simply leads to another round of negotiation of price or other terms. There is really no completely standard or neutral form of purchase agreement—sometimes the agreement will be more pro-buyer or pro-seller, and the list and outline of terms will vary. However, there are a number of fairly standard issues covered, such as: identification of the assets to be sold, earnest money deposits, title conditions and examination of title, inspection and evaluation of the property, conditions that must be satisfied before each party is required to close the transaction, identification of the closing documents and what happens at closing, representations and warranties given by the parties, proration (division) of property taxes, rents and other ongoing expenses and revenues, default provisions and general contract terms. Some purchase agreements will also include as exhibits agreed forms of conveyance documents to be signed and delivered at closing, such as deeds, bills of sale, assignment of leases, assignments of contracts and warranties pertaining to the property, general contract terms, and so forth. Keep in mind also that the legal framework for the formation and interpretation of an enforceable purchase agreement is governed in the U.S. by state law, and for that reason, some terms may differ as to phrasing and legal effect depending on what state’s law governs (usually the law of the state where the property is located). Notwithstanding, the laws tend to be substantially similar from jurisdiction to jurisdiction, and this form agreement represents a good overview of what would be practiced in most U.S. state jurisdictions. Perhaps universally, a contract for the sale and purchase of real property will have to be in writing to be valid and enforceable. with a multi-tenant office building, as well as certain related real and personal property, which is, collectively, more specifically defined below as the Property. B. Purchaser desires to buy the Property. C. Seller and Purchaser have agreed to set forth in this Agreement the terms governing the purchase and sale of the Property. NOW, THEREFORE, for Ten Dollars ($10.00), in consideration of the mutual covenants and promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:3 ARTICLE 1 PURCHASE AND SALE 1.1 Agreement of Purchase and Sale. Subject to the terms of this Agreement, Seller will sell and Purchaser will purchase the Property, comprising the Land, the Related Rights, the Tangible Personal Property, the Leases and the Intangible Personal Property, as such terms are defined in clauses 1. 2. 1 through 1.2.6 below.4 1.2 Definition of “Property”. For all purposes hereof, the “Property” shall be deemed to include the following real and personal property assets:5 1.2.1 Land. The land consisting of approximately ___ acres, located in _________, ________County, _______ and legally described on Exhibit A (the “Land”);6 1.2.2 Easements and Appurtenances. The rights, easements and appurtenances pertaining to the Land including Seller’s interest (if any) in and to any adjacent streets, alleys or rights-of way (the “Related Rights”);7 3 This is a typical statement of mutual consideration to bind the parties to the contract. Note that the money consideration ($10.00) is “nominal”—but this is generally viewed as satisfactory. 3 This paragraph contains the principal mutual promises made between the seller and buyer. However, as noted, there are numerous conditions that will have to be satisfied before the parties (especially the buyer) are actually irrevocably obliged to “sell” and “purchase”. 5 Although this is a real property transaction, there may be some personal property assets associated with the real estate, particularly a fully built and leased commercial development, so personal property is covered in the list of assets. 6 A legal description (of which there are several possible formats) describes the actual land parcel to be sold along with buildings and other components. The legal description may be found in an earlier deed, in title insurance documents or developed by a surveyor. The legal description will be used to index the property in the land or real estate registry upon recording (registering) the deed. Typically approximate acreage is given and the city or county where the property is located is identified, though with the legal description attached, these are not really necessary. 7 Easements and other rights that belong to the land probably do not actually have to be listed since conveyance of a parcel of land generally will automatically convey the associated “appurtenances” such as easements benefiting the property, contingent rights to the land underlying and adjoining public street, and other similar rights. However, it is 2 1.2.3 Improvements. The buildings and other physical structures on the Land, [including _____________] (the “Improvements”); 1.2.4 Tangible Personal Property. Seller’s interest in all tangible personal property located on the Land or within the Improvements, and used exclusively in connection with the ownership, use, maintenance or operation of the Land and the Improvements (the “Tangible Personal Property”);8 1.2.5 Leases. Seller’s interest as landlord under all agreements listed on Exhibit B (the “Leases”);9 and 1.2.6 Contracts; Warranties; Intangibles. Seller’s interest under and to (i) the assignable Service Contracts (as defined in Section 6.1.5 of this Agreement), (ii) all assignable warranties and guaranties issued to or inuring to the benefit of Seller in connection with the Improvements or Tangible Personal Property, (iii) all assignable licenses and permits held by Seller at the time of Closing relating to the operation of the Property (the “Licenses”), (iv) Seller’s tradenames used in connection with the Land and the Improvements, and (v) all environmental studies and reports, promotional materials, surveys, building plans, monthly parking contracts and lease files (including any original leases) possessed by Seller and used by Seller exclusively in connection with the Land and the Improvements (items (i) - (v) are collectively known as the “Intangible Property”).10 1.3 Property Defined. The Land, the Related Rights, the Improvements, the Tangible Personal Property, the Leases and the Intangible Personal Property are collectively called the “Property”. ARTICLE 2 PURCHASE PRICE AND EARNEST MONEY customary to list these expressly. Similarly, improvements (such as buildings and other structures) are usually legally conveyed in conveying the legally described parcel of land, but it is appropriate to identify them separately, and, sometimes the buildings may be separately owned . 8 Often commercial real estate does not really have much in the way of tangible personal property—sometimes some maintenance and cleaning equipment , furniture or equipment in common areas of the building, and so on. In some commercial buildings (e.g., a hotel), personal property can be more significant. Still, whatever it is, the agreement should refer to it as part of the property to be purchased and state expressly if anything on the premises is not to be conveyed. 9 The list of leases attached to a purchase agreement can be quite elaborate, including the term of each lease, location of the leased space, length of term, rental amounts, specific rights of each tenant (such as an option to extend the lease), and other terms. This list is often referred to as a “rent roll”, and the seller may be asked to certify as to its accuracy. 10 This is a typical list of other, miscellaneous personal property rights that a buyer will expect to get along with the real property itself. 3 2.1 Purchase Price. The purchase price (“Purchase Price”) for the Property is ____________ ($________), payable by wire transfer of immediately available funds, against which the Earnest Money (as defined below) shall be applied, subject to adjustment at closing as provided in Section 5.4. 2.2 Earnest Money. No later than two (2) business days after the Effective Date, Purchaser must deposit with the Escrow Agent ________________ ($________) (together with any additional deposits and all interest accrued, the “Earnest Money”). If the closing hereunder occurs, the Earnest Money will be applied towards payment of the Purchase Price. The Escrow Agent will hold and dispose of the Earnest Money strictly in accordance with Article 9.11 2.3 Consideration. If Purchaser is entitled to a return of the Earnest Money under this Agreement, then Escrow Agent will deliver One Hundred Dollars ($100.00) of the Earnest Money to Seller as good and sufficient independent consideration for entering into this Agreement. In addition, Seller acknowledges that Purchaser, in performing its due diligence investigation of the Property, will incur expenses, and that Purchaser’s expenses also constitute good, valuable and sufficient consideration for this Agreement.12 ARTICLE 3 TITLE AND SURVEY 3.1 Title Examination. No later than 10 days prior to the Inspection Period Termination Date (the “Title Objection Date”), Purchaser must, at Purchaser’s expense, cause the Title Company to issue to Purchaser an owner’s title insurance commitment (as initially issued to Purchaser, the “Title Commitment”) and deliver the Title Commitment to Seller, along with copies of all exception matters listed in the Title Commitment.13 11 Typically, the parties will request that the title insurance company will act as the escrow agent to hold the deposit and also to handle closing documents. The title company (or other person acting as escrow agent) may be asked to sign the purchase agreement to acknowledge receipt of the deposit and the other responsibilities of the escrow agent. If the earnest money deposit is paid after the agreement is signed, the title company should notify the parties that it has been received. If the deposit is not received by the stated deadline, the seller would likely be entitled to elect to terminate the purchase agreement and its further obligations. 12 One may argue that if nominal consideration is needed, it should be added to the statement of consideration in the NOW, THEREFORE clause, which is typical. Therefore, this clause may not be typical in many jurisdictions. 13 U.S. real estate practitioners rely heavily on the system of title insurance to provide a platform for the parties to (i) ascertain the status of title to the property in question and which person or persons hold various possible interests in the property, and (ii) to give financial assurance, in the form of title insurance, to the buyer that the buyer will receive good title to the real property when the purchase is completed. The title insurance company is charged with searching the official local property registry (recording office, register of deeds, or other terms) to see what interests have been recorded against the property and reporting this information to the buyer and seller. A title commitment is a per-closing statement by the title insurance company in which it (i) shows who owns the real estate, (ii) discloses other interests in the property shown (or suggested to exist) in the property records, and (iii) indicates the conditions that have to be satisfied at or before closing so that it can insure the title that the buyer receives in commercially acceptable condition. It is difficult to explain without a very lengthy discussion how the title insurance system works, but it is a vital and practical element of the property conveyancing (and financing) system in the U.S. today and can be important in both identifying and resolving problems relating to title to real property 4 3.2 Survey. On or before the Title Objection Date, Purchaser must, at Purchaser’s expense, deliver to Seller a survey of the Property (the “Survey”) which has been drawn in accordance with the 2011 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys adopted by ALTA/ACSM, and with all Table A requirements other than 5, 12 and _________, by a licensed surveyor or engineer reasonably approved by Seller.14 3.3 Title Objections; Cure of Title Objections. 3.3.1 Objections. No later than the Title Objection Date, Purchaser will notify Seller in writing and in reasonable detail of what objections, if any, Purchaser has to the Title Commitment or Survey (the “Title Objections”), other than the Permitted Exceptions (as defined below) to which Purchaser is not permitted to object. Prior to notifying Seller of any Title Objections Purchaser must endeavor in good faith to cause Title Company to modify and update the Title Commitment to reflect Purchaser’s requested corrections and revisions. Failure to so timely notify Seller is deemed a Purchaser waiver of Purchaser’s rights under this Section 3.3.15 3.3.2 Seller Remedies. Seller must n notify Purchaser no longer than five (5) calendar days after receiving Purchaser’s notice of Title Objections under Section 3.3.1 above of whether Seller will cause any Title Objections to be removed from title, insured over or cured (either by endorsement or by “writing over” in a manner satisfactory to Purchaser). Seller's failure to provide such notice to Purchaser within the required period as to the action Seller will take with respect to any Title Objection is deemed an election by Seller to not remove from title, insure over or cure the Title Objection. 3.3.3 Purchaser Termination Right. If Seller so notifies or is deemed to have notified Purchaser elected under Section 3.3.2 that Seller will not remove, insure over or cure and to facilitating closing of transactions. Appropriate escrow arrangements through the title company, including handling the funds used to pay the purchase price and other costs, can be part of that facilitation. 14 It is good practice for a buyer to obtain a survey of the real estate prior to purchasing and as a guide to understanding the state of title. Typically, the title insurance commitment (title report) and the survey will be reviewed together. A survey will typically show the boundaries of the land, where easements are located, and if the property is developed, the location of buildings, paved areas, driveways and sidewalks, various utility structures, and a variety of other information. ALTA/ACSM stands for American Land Title Association/American Congress of Surveying and Mapping, trade associations for title insurers and surveyors particularly, The “standard detail” and “table” items indicate details to be covered on the survey. This provision rather favors the seller. Although the buyer should get a survey, there is no clear reason why the seller should require this to be done. As to who pays, it is negotiable, though it is probably more usual for the buyer to pay the cost of a survey, just as it is more typical, although, again, negotiable, for the seller to pay the cost of title insurance searches and title insurance premiums. 15 Reviewing the title information is part of the buyer’s examination of the state of the property prior to completing its purchase (often referred to as the buyer’s “due diligence”). If the buyer finds matters relating to title that it objects to (for example, there is a mortgage lien encumbering the property, a third party appears to have a claim of some interest in the property, or there is an unacceptable easement right—e.g., a right to have a driveway or utility line in the middle of the area where the buyer plans to build a building), the buyer may object. Then the parties have to decide what to do about the objection, if anything. This paragraph places much of the burden on the buyer, and would typically be viewed as rather pro-buyer. “Permitted Exceptions”, which the parties agree may not be objected to by buyer in order to terminate the agreement, are further discussed in footnote 17. 5 any or all of the Title Objections, then Purchaser has until the Inspection Period Termination Date to notify Seller whether it will (i) proceed with the purchase and acquire the Property subject to the Title Objections and without any reduction in the Purchase Price, in which case the Title Objections are deemed approved, or (ii) terminate this Agreement, in which case the Earnest Money (subject to Section 2.2) will be refunded to Purchaser. Purchaser's failure to give Seller such notice shall be deemed to be an election by Purchaser under clause (i) above. 3.3.4 No Obligation to Cure. Notwithstanding anything to the contrary, Seller has no obligation to take any steps, bring any action, or incur any costs, effort or expenses whatsoever regarding any Title Objection.16 3.4 Permitted Exceptions. “Permitted Exceptions” includes and refers to: (i) all exceptions to title in the Title Commitment approved or deemed approved by Purchaser pursuant to Section 3.3; (ii) the rights and interests of parties claiming under Leases; (iii) Title Company's standard printed exceptions, exclusions and conditions contained in an ALTA Owner's Title Policy; (iv) zoning ordinances and regulations and other laws or regulations governing use or enjoyment of the Property; (v) matters affecting title created by, on behalf of, or with the consent of Purchaser; and (vi) liens to secure taxes and assessments not yet due and payable.17 ARTICLE 4 INSPECTION 4.1 Right of Inspection. 4.1.1 Seller hereby grants to Purchaser and Purchaser’s agents, consultants and contractors, subject to the conditions set forth below, the right to enter the Property during the “Inspection Period” commencing on the Effective Date and ending on ____, 20__ (the “Inspection Period Termination Date”) in order to inspect and evaluate the Property.18 16 While it is rare to require the seller to “cure” all title conditions raised as issues by the buyer, some conditions the seller may be required to deal with, for example, to pay off existing liens if the proceeds of sale are large enough to cover them. This, like many of the terms in this part of the agreement, is all a matter of negotiation. 17 Section 3.4 sets forth a list of generic types of matters affecting title or use of the property that the parties have agreed the buyer may not object to in order to terminate the purchase agreement and get its deposit back. Sometimes (though this agreement does not do it) the parties will also identify in an exhibit to the agreement, usually proposed by the seller, a list of preexisting title encumbrances (for example, existing easements, subdivision restrictions, on-going special tax assessments and other conditions). Again, these are negotiable. For example, in a less pro-seller form, the so-called “standard exceptions” that will otherwise appear in the title insurance policy will be required by the buyer to be deleted from the title insurance policy as a condition to closing (provided that the buyer or seller may be required to furnish a survey for the title company to examine) and the seller may have to certify as to other facts of concern to the title company. The existence of zoning and other land use regulations are not a title condition strictly speaking, but may be identified as permitted exceptions. If a buyer has the right to examine and be satisfied with the zoning provisions that apply to the property before closing the sale, then it would not automatically agree to include “zoning ordinances”, etc., as permitted exceptions. 18 Any extended right to inspection of the property (and to review financial and physical information concerning the property) is a distinctive, highly practical part of U.S. real estate purchase and sale practice, and typical provisions are included in this Article 4. Typically, the potential buyer is given fairly wide-ranging rights to access to property records and to have its consultants enter the property to evaluate its condition. Generally, sellers do not 6 Purchaser shall have access to the Property during reasonable business hours and upon reasonable prior notice to Seller in order to perform non-invasive inspections and tests on the Property; provided that Purchaser must obtain Seller’s advance written approval for the scope and method, described with reasonable specificity, of (i) intrusive, or invasive testing or inspection (including any environmental testing other than a so-called Phase I audit), (ii) any testing or inspection which could alter the physical condition of the Property, or (iii) any testing or inspection which requires a consent under a Lease or Service Contract or which could result in a default under the Lease or Service Contract.19 Purchaser will deliver to Seller promptly all information produced or procured by Purchaser.20 Purchaser will promptly restore the Property to a condition that is at least as good as its previous condition immediately following any entry, test or inspection. 4.1.2 Purchaser is liable for all damage or injury to any person or property resulting from, relating to, or arising out of Purchaser’s activities on the Property pursuant to Section 4.1.1, whether due to the acts of Purchaser or any person acting by or on behalf of Purchaser, and Purchaser must keep the Property free and clear of any liens arising from work performed on behalf of Purchaser in connection with its inspection activities. Purchaser indemnifies, defends and holds harmless Seller and Seller’s agents, property manager, employees, directors, officers, affiliates, interest holders, successors and assigns (collectively, the “Indemnitees”) from and against any and all claims, costs, damages, liabilities or liens of any kind arising out of or due to Purchaser’s activities pursuant to Section 4.1.1. 4.1.3 In furtherance of Purchaser’s exercise of its inspection rights hereunder, promptly following the Effective Date, Seller will make available to Purchaser for Purchaser’s review copies of environmental and engineering studies, as-built plans, operating statements and other financial materials, correspondence relating to Leases and Service Contracts, existing title insurance documents, surveys and site plans, warranties and other documentation in Seller’s possession and reasonably relevant to Purchaser’s evaluation of the Property. Purchaser’s access resist allowing the buyer to carry out a broad inspection—in essence, there is a trade off between allowing the buyer a thorough inspection and requiring the seller to give broad representations and warranties about the condition and performance of the property. In effect, the seller would rather let the buyer see for itself and, as a result, not be called on to “insure” the property by means of broad representations. That is, the longer and more extensive the buyer’s inspection rights, the weaker will buyer’s argument be that it should receive broad warranties of condition or financial performance. There will be negotiations about the length of the inspection period so that the property is not kept off the market for too long, and about the right of the seller to supervise the inspection and agree to more intrusive inspections (such as testing for environmental contaminants), and to maintain confidentiality. 19 This clause gives the seller a reasonable degree of control over more extensive investigations on the property. Sellers are especially concerned about extensive environmental testing (which may involve soil borings, sinking wells to evaluate groundwater, and other measures, which may implicate its environmental liability under governmental regulations) (see also Section 4.4, which specifically protects the seller on this point), and about the degree to which consultants circulating about the property may interfere with or annoy tenants. 20 The requirement for a buyer to furnish the results of inspections to the seller is a sensible one. Since the buyer typically has the right to terminate the purchase agreement if it is dissatisfied with the results of its inspections without any payment to seller, and if it elects to terminate, to receive its deposit back, then it is fair to have reports prepared regarding the property turned over to the seller for its own use. 7 to and use of such materials is subject to the confidentiality provisions set forth in Section 4.3 below.21 4.2 Insurance Requirement. Before Purchaser may enter the Property, Purchaser must provide Seller with a certificate of insurance naming Seller (and any other persons designated by Seller) as an additional insured and with an insurer satisfactory to Seller and with insurance limits in a minimum amount of $1 million of personal injury and property damage liability coverage, including contractual liability).22 4.3 Confidentiality. Unless Seller specifically and expressly otherwise agrees in writing, Purchaser agrees that (a) the results of all inspections, analyses, studies and similar reports relating to the Property prepared by or for Purchaser utilizing any information acquired in whole or in part through the exercise of Purchaser’s inspection rights; and (b) all information (the “Proprietary Information”) regarding the Property of whatsoever nature made available to Purchaser by Seller or Seller’s agents or representatives, is confidential and shall not be disclosed to any other person except those assisting Purchaser with the transaction, or Purchaser’s lender, if any, and then only upon Purchaser making such persons aware of the confidentiality restriction and procuring such persons’ agreement to be bound thereby. Purchaser agrees not to use, or allow to be used, any such information for any purpose other than to determine whether to proceed with the contemplated purchase, or if same is consummated, in connection with the operation of the Property post-closing. Further, if Closing does not occur for any reason whatsoever, Purchaser agrees to return to Seller, or cause to be returned to Seller, all Proprietary Information. The provisions of this Section 4.3 shall survive any termination of this Agreement.23 4.4 Contact with Governmental Authority. Purchaser shall not disclose any information about the environmental condition of the Property to, or contact, any governmental authority having jurisdiction over the Property regarding environmental matters that come to Purchaser’s attention in the course of its inspections without the prior written consent of Seller, unless otherwise required by law. In the event such disclosure is required by law, Seller shall 21 Obligating the seller to furnish information in its records concerning the property is very important to the buyer, especially if this information is provided early in the inspection period. A purchase agreement that is most favorable to the buyer will include a detailed schedule of the types of information to be provided, and may delay commencement of the inspection period until such information has been delivered to it. 22 Liability insurance covering personal injury and property damage that may occur during the inspection process is typical and should be required by the seller. The buyer should require adequate insurance coverage from its consultants such as building engineers and environmental inspection firms. The amount of coverage is debatable— sometimes figures like the $1 million of coverage in this sample agreement get inserted and carried over by attorneys without reference to the specific property or the entities involved. Best practice would be for the seller to consult with its insurance or risk management advisor, if it has one. In addition to the insurance, the buyer gives an agreement to indemnify the seller if there are claims for personal injury or property damage occurring during the inspections, or if the property is not properly restored after invasive testing. A buyer’s obligations under such an indemnity to the extent they cover personal injury and property damage claims can be covered under buyer’s liability insurance policy. 23 Sellers who are very particular about maintaining confidentiality obligations will sometimes require that the buyer’s third party consultants sign an acknowledgment that they are bound by the confidentiality provisions as well. 8 have the right, but not the obligation, to elect to satisfy such obligation by making the required disclosure. Routine searches of government data bases or other typical inquiries made by an environmental consultant in the course of a Phase I audit are not subject to the restriction set forth in this Section 4.4.24 4.5 Sale of Property “As-Is”. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW AND EXCEPT FOR SELLER'S REPRESENTATIONS AND WARRANTIES IN SECTION 6.1 AND ANY WARRANTY CONTAINED IN THE DEED TO BE PROVIDED BY SELLER AT CLOSING (COLLECTIVELY, THE “WARRANTIES”), THIS SALE IS MADE AND WILL BE MADE WITHOUT REPRESENTATION, COVENANT, OR WARRANTY OF ANY KIND (WHETHER EXPRESS, IMPLIED, OR, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, STATUTORY) BY SELLER. AS A MATERIAL PART OF THE CONSIDERATION FOR THIS AGREEMENT, PURCHASER AGREES TO ACCEPT THE PROPERTY AT CLOSING ON AN “AS IS” AND “WHERE IS” BASIS, WITH ALL FAULTS AND ANY AND ALL LATENT AND PATENT DEFECTS, AND WITHOUT ANY REPRESENTATION OR WARRANTY, ALL OF WHICH SELLER HEREBY DISCLAIMS, EXCEPT FOR THE WARRANTIES.25 4.6 Right of Termination. Seller agrees that Purchaser may terminate this agreement for any reason or no reason by giving written notice to Seller on or before the Inspection Period Termination Date. Upon such termination, the Earnest Money shall be returned to Purchaser in accordance with Article 9, and Seller and Purchaser will have no further rights and obligations hereunder except those which expressly survive termination of this Agreement. Failure to timely deliver a termination notice is deemed a Purchaser waiver of Purchaser’s rights to terminate under this Section 4.6. and agreement to consummate the purchase of the Property subject only to the satisfaction of Seller’s closing obligations as set forth in Section 5.2 below.26 24 A property owner always wants to control the flow of information to government agencies charged with enforcement powers in the environmental area so as to avoid triggering enforcement actions before they themselves have had the opportunity to evaluate the issue and develop a plan of action for how they would like to deal with the compliance requirements under environmental statutes, including by informal consultations and the like. Thus, the seller will not want the buyer to engage in direct discussions with governmental authorities as to the results of environmental testing if they reveal adverse conditions without prior approval by the seller. This is appropriate, given that the buyer can walk away from the agreement without any cost or future consequences if it does not like what it finds, while the seller will be left to deal with the problem. 25 This is a typical “as is” clause. The buyer has been given an extensive opportunity to investigate the property— in return, the seller will be expected to give only a very limited set of warranties and representations, generally limited to disclosure of adverse conditions that would be less likely to be revealed by the buyer’s inspections. The reference to warranties in the deed refers to warranties regarding the seller’s title that are part of a typical deed conveying real estate. Depending on the jurisdiction, there may be common law or statutory limits on some disclaimers of warranty notwithstanding the express language of the clause—this is a matter for particular legal research. 26 The termination clause gives the buyer the right to terminate the agreement if it is dissatisfied with the results of its inspection. Typically it does not have to give any reason, so that even though the inspection period will typically be used exactly as set forth, that is, to allow for a thorough inspection and evaluation of the property, in fact, it can also function as a “free look”, in the sense that the buyer may simply use the period to ponder whether it wishes to proceed with the transaction, taking into account reasons such as the state of the market, its financial condition, and other opportunities that may arise in the interim, that really have nothing to do with the evaluation of the property. In the event the buyer does find adverse facts about the condition of the property or its financial performance, the 9