Commercial Real Estate News / General CRE / How the Common Law of Contracts Governs CRE Sales

How the Common Law of Contracts Governs CRE Sales

Published: 10-23-21 Category: General CRE

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

A lawyer sitting at a desk signing a contract.

This article was updated on 11/09/23.

Most of us have watched at least a few episodes of daytime court shows, but that doesn't bring us any closer to actually being aware of the law. The world of commercial real estate listings is vast, and it's governed by federal, state, and local laws. That's a lot to keep up with, even if real estate law is your specialty! Reviewing commercial real estate listings requires also understanding the contracts underneath those deals.

Unfortunately, there isn't a centralized fountain of knowledge that will protect you when it comes to all things commercial real estate law. This means that it's up to you to start learning about the basics. It isn't a replacement for a commercial real estate lawyer by any means, but if you sit down with a lawyer in the future, you'll at least have a starting point for discussions.

Common Law Contracts vs. the Uniform Commercial Code

While common law and the uniform commercial code (UCC) go hand in hand when it comes to commercial real estate near you, the reality is that there are some strong differences between the two.

Here's what you need to know:

Common law contracts cover real estate transactions, while the uniform commercial code covers the movement of tangible objects and goods.
The UCC does not require explicit consideration, also known as payment. The common law contracts do require consideration to be listed in full.
While the UCC considers a counteroffer as part of the original offer, the common law contract sees a counteroffer as a brand new offer separate from the original agreement.
The common law contract does not include any sort of warranty, while the UCC does consider the warranty of merchantability automatic.
The statute of limitations is shorter for a UCC based contract compared to common law.
Common law contracts are used in real estate with a high degree of detail, whereas the UCC is more suited to tangible goods.

As you can see from the differences above, UCC is stricter in some ways, while the common law contracts are far more detailed and explicit. Before you just type in commercial listings near me, try to get a better understanding of the contract issues involved in any transaction.

The Basics Behind Common Law Contracts

The basics of common law contracts can be boiled down into a few key terms. As you review real estate contracts, you will see these terms come up as they are required in order to have a valid contract between two parties.

Here are those terms below:

Offer. The offer in a real estate contract represents the actual property as well as everything that comes with the property.
Acceptance. This means that the seller agrees to your terms as a buyer or the other way around when you are the one selling the property.
Consideration. Simply put, this is the amount of money on the table in order for the property to change hands.
Capacity. This refers to both parties being able to enter contract terms (i.e., not mentally incapacitated) for the real estate transaction.

Common law contracts are critical when it comes to a successful real estate transaction. Violating the contract terms will almost always lead to litigation at the most or, at least, arbitration.

The "Mirror Image" Rule

A feature of common law contracts is known as the "mirror image rule." It is simplified as follows: an offer with consideration (money) has to be accepted as is without modification in order for the contract to be valid. In the world of real estate, this means that the acceptance of the offer has to match exactly with what's being offered without any changes made by either party. As soon as something changes, it means that the contract terms have changed, and the mirror image rule is no longer in place.

Definite Establishment of Essential Terms

What makes common law contracts so important is that they have the definite establishment of essential terms. For example, compensation is required in a common law contract. This cannot be a vague concept in the contract; the compensation aspect requires the specification of payment.

Reviewing common law contracts with a qualified legal professional is a wise decision. While this guide lists common terms found within contracts, it is far from a proper substitute for legal advice.

How to Hire an Effective Commercial Real Estate Attorney

Trying to navigate the world of commercial real estate near you alone is not a recommended path. Indeed, the amount of terms and concepts to keep in mind is so vast that a real estate attorney well-versed in commercial holdings is highly recommended. Here's what you need to know:

Look at their track record. What are the strengths and weaknesses of your real estate attorney? Looking at their track record with previous clients can reveal this information.
Make the most of your consultation time. A common mistake investors make is being afraid to ask as many questions as they need to gain greater insight into a real estate deal.
Ask about the process. Every attorney has a different way of addressing problems; be sure to get a better idea of how your attorney can handle certain scenarios.
Develop a strong plan. What do you want the lawyer to help you accomplish? Setting goals helps your investment dreams come to life easier.
Look into a retainer agreement. If you plan to invest in multiple commercial estate properties, ask about a retainer agreement. You want to have an expert in your corner at a moment's notice.
Don't be afraid to ask for references. If a commercial real estate attorney is truly as well established as they claim, they'll be able to give you plenty of references from other real estate investors.

While there are multiple points to keep in mind when hiring a commercial real estate attorney, the truth is that these professionals can make all of the difference in your future success as a real estate investor. Don't skip over getting expert help!

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