Negotiating Survival Clauses and Holdback Provisions in Commercial Real Estate Sales Transactions

Description

The merger doctrine holds that when parties convey real property by a deed, all prior covenants, agreements, proposals, stipulations, etc., between the parties regarding the conveyance are merged into the deed and superseded. The doctrine is based on the premise that the deed represents the final and entire contract between the parties and, when strictly applied, prevents any prior promise from surviving beyond escrow. The only obligations between the parties are those outlined in the deed.

Survival clauses allow buyers and sellers to sidestep this potentially troublesome practice by providing a means to address the balance of potential risks that can only resolve after the closing has occurred. Issues like indemnification for expensing relating to a respective party's time of ownership and "true-ups" of outstanding taxes or utility expenses typically remain unresolved by the closing date and, as such, must survive.

Likewise, buyers cannot accept the seller's representations and warranties without a means of recourse for breach. Increasingly, parties are relying upon holdback provisions to address potential liability for breach of these various survival clauses.

Listen as our panel of seasoned real estate practitioners discusses critical considerations when negotiating survival clauses and how holdback provisions can impact their effectiveness in commercial real estate sales agreements.