Should I review a commercial sale agreement before signing? Yes, you should have a commercial sale agreement review done before you sign, and for most commercial deals it is the last point at which the risks can still be negotiated or removed. A commercial agreement sets out the price, the conditions, the warranties, the tenants you inherit, the tax treatment and what happens if something goes wrong. Once both parties have signed, you are bound to all of it. Let’s examine which clauses cause the most damage later, why timing is critical and what a proper review checks.
What clauses cause the most damage later?
Commercial agreements stack title conditions, servitudes, bond structures, suspensive conditions and FICA requirements on top of each other, and any one of them missed by the wrong person lands on the buyer. The clauses that most often cause damage are below.
- Suspensive conditions. Finance approval, due diligence, rezoning, a consent from a third party, the sale of another property. Each needs a clear deadline and a clear result if it fails. A condition with no deadline or a vague test, such as “to the buyer’s satisfaction”, is a dispute waiting to happen.
- Warranties and the voetstoots clause. A commercial seller will often limit the warranties it gives and rely on voetstoots. A buyer needs to know what is guaranteed, such as lawful use, no pending notices, compliance with building rules and accurate income figures, and what is not. The limits of voetstoots are explained in what sellers risk by not disclosing properly.
- Tenants and leases. If the property is let, the agreement usually transfers the leases with it. The buyer inherits rents, deposits, renewal rights, rent-free periods and any arrears. A lease schedule that is wrong or out of date can overstate the income you are buying.
- Tax treatment. A commercial sale is subject to either VAT or transfer duty, not both, as SARS explains. Which one applies, who pays it and whether the sale is treated as a going concern must be stated clearly, because the cash required at registration changes. See transfer duty for the general rule.
- Title conditions, servitudes and zoning. The agreement may say the buyer takes the property subject to everything registered. If a restriction blocks your planned use, the contract may already have put the risk on you.
- Deposit, breach and cancellation. Who holds the deposit, when it is released, how long a party has to remedy a default and what damages can be claimed. A harsh forfeiture clause can cost far more than the deposit.
- Occupation and costs. Occupation dates, occupational rent, who pays rates and levies before transfer, and who pays for repairs and certificates.
An Upper Highway case shows how a few clauses combine. A broad voetstoots clause, an open-ended bond condition and an early occupation date put a seller within reach of a R380,000 dispute until I renegotiated them before signature. The illegal structures case study tells the story, and the same logic applies on a larger scale to commercial deals.
Why is timing critical?
Because the agreement is where leverage lives. Before signature, the seller wants the sale and you can ask for changes, add conditions or walk away. After signature, the seller has a bound buyer, and the contract decides everything. A few features of commercial deals make timing even tighter.
- Conditions run on dates. Finance and due diligence periods start from signature. If your review happens inside that period, you have already lost days. If it happens before, you can set the dates yourself.
- Deposits and costs build up. Once you have paid a deposit and started spending on surveys, valuations and finance, walking away costs more.
- Sellers move fast. A competing bidder or a “final offer” deadline is a common way to rush a buyer past the small print.
- Third parties are involved. Lenders, tenants and municipalities all have their own timetables. An agreement that does not allow for them leads to default.
- Fixing it later is rarely possible. An addendum needs the other side’s agreement, and they have no reason to give it.
The principle is the same as in a residential sale, which I explain in my article – should I review an Offer to Purchase before signing. In commercial deals the amounts and the complexity are larger, so the cost of skipping the step is too.
What does a proper commercial review actually check?
A commercial sale agreement review compares the document with your plans for the property. I work through the agreement with you line by line. It generally covers:
- The parties and authority. That the seller is the registered owner and can sign, and that your own signing authority and structure are correct if you buy through a company, trust or syndicate.
- The property and the title. A deeds search, the title conditions, servitudes and any registered bonds or long leases, checked at the Deeds Registry.
- Zoning, plans and compliance. Whether the use is lawful and the buildings approved, as the page on legal oversight for a commercial property purchase explains.
- The conditions and dates. Whether every suspensive condition has a deadline you can meet and a result if it fails.
- Warranties, disclosure and risk. What the seller guarantees, what is excluded and who carries the risk between signature and transfer.
- Leases and income. The lease schedule against the leases themselves, and the arrears, deposits and rights that come with them.
- Tax and costs. VAT or transfer duty, going concern conditions and the total cash needed at registration.
- Breach, deposit and exit. What happens if either party defaults and how you can get out.
The result is a plain-language explanation of what you are agreeing to, a list of changes to ask for and, where needed, the amendments drafted. A commercial property lawyer acts for one party only. Gordon does this for buyers, sellers and investors across the Upper Highway and the North Coast. The first consultation is free, and the Law Society of South Africa publishes guidance if you want to check an attorney’s standing.
The short answer
Reviewing a commercial sale agreement before signing is the only point at which most risks can still be negotiated or removed.
Holding a commercial sale agreement? Get it reviewed by a commercial property lawyer before you sign.
Book a free 30 minute consultation or call +27 31 765 1777 (Upper Highway) or +27 82 519 5401 (North Coast).
