A Brief Introduction About the Land Sale Contract
When you want to purchase real estate, either in the form of an apartment or an independent home or a plot of land, you need to enter a land sales contract with the owner of the land.
Unlike a regular mortgage with a financial institution, the buyer enters a contract with the seller and directly makes payments to them. For this reason, another term for these contracts is seller financing.
The buyer pays monthly installments to the seller until the entire purchase price is paid, and after that, the title to the property passes to the buyer. Till the final payment is made, the buyer has possession but not ownership of the property.
Land Sale Contract includes the details regarding the property being sold, information about the buyer and seller, the purchase price agreed upon, the total number of installments and the penalty for delay in payment or inability to deliver the title to the property on time. Land sale agreements are generally found in the case of agricultural land. The farmer can use the land before purchasing it.
The buyer gets an ‘equitable title to the property, meaning the seller cannot sell the property to another party or use this property as collateral for a loan.
Who Takes the Land Sale Contract?
The two parties to the land sale contract are the owner of the land or the seller and the buyer. There is no third party involved, such as a bank or a financial institution as the seller is the financer. The rates and the tenure for repayment of the loan are mutually decided.
Purpose of the Land Sale Contract
In a land sale contract, the buyer has the right to inspect, insert provisions for liquidated damages if the seller tries to back out of the agreement, and ensures that the title to the property is clear.
In the case of land sale agreements, the seller of the land has to provide an accurate description of the land. There is scope for negotiating the price put forth by the buyer and financing can be either obtained through a bank if the credit score of the buyer is good, or directly from the seller if it is not. The agreement would include the closing date by which the full payment must be made by the buyer, and the title to the property must be transferred by the seller.
With the contract, the rights of the buyer and the seller are protected. If the buyer fails to make the full payment, then the seller can forfeit the land.
Contents of the Land Sale Contract
We can determine the contents of such contracts by looking at the contract Oregon. Here is the information you can find:
- Description of the land, including any improvements made to it
- Use of the land in accordance with the applicable laws of the state
- The purchase price, terms, and deed: The due date by which the entire purchase price, along with interest needs to be paid to the seller. When the complete payment is made, the title deed shall be transferred to the buyer
- The name of the purchaser, seller, and the county where the land is located
- Taxes and liens: It is the responsibility of the purchaser to pay all taxes and liens related to the land
- Insurance: The purchaser needs to pay for fire insurance, including liability coverage
How to Draft the Land Sale Contract?
A land contract form can be referred to while drafting these agreements. The points to consider are as under:
- Competent to contract: Both parties to the agreement should be of legal age, of sound mind, and not under the influence of drugs or alcohol.
- Consideration for the contract: If the buyer is paying in installments, then the down payment and the total number of installments, and the due date for payment should be mentioned.
- Default : In the case of non-payments on time by the Buyer, the Seller reserves the right to declare the Buyer in default of this Contract.
- Closing date: The closing date by which the buyer should complete the payments and the seller should deliver the title to the property.
- Terms of the contract: The terms of the contract should benefit both the buyer and the seller.
- Dispute resolution clause: Whether arbitration or litigation to be used, the sharing of attorney fees and the jurisdiction for the settlement needs to be mentioned.
Negotiation Strategy
In the case of this contract, it is important for the buyer to get the land inspected, find the quality of the soil, and ensure the title to the property is clear before making an offer. The seller can either reject it or make a counteroffer. Both parties need to negotiate a price and then sign the agreement.
Benefits & Drawbacks of the Land Sale Contract
The benefits of a land sale contract are as under:
- Protection of interests: Both the buyer and the seller are protected by the contract. The buyer gets land with a clear title, and the seller is assured of full payment along with the accrued interest on time
- Right to legal action: If either party fails to fulfill the contractual obligations mentioned in the agreement, then legal action can be taken against the party violating the contract
- Exiting the contract: If the buyer finds that the seller has provided misleading information, they can exit the contract
The drawbacks of a land sale contract are as under:
- Possible losses: Both parties are likely to suffer losses without a contract. The buyer may get a piece of land that does not match the blueprint in terms of size, and the title may not be clear. The seller may not be paid the full price of the land in such a case.
[ Also Read: Agriculture Lease Agreement ]
What Happens in Case of Violation?
If the buyer fails to make the full payment, the seller may forfeit the land. If the seller does not provide the title to the property before the closing date of the contract, the buyer can claim monetary damages. There should be a provision for liquidated damages(1) in the contract. If fraud is detected by either party, the court may either opt for rescission or cancellation of the contract or go for reformation where a fresh contract is drawn.
Both the buyer and the seller should exercise caution in this contract. The contract should ensure that the seller can forfeit the land due to nonpayment by the buyer, and the buyer should be able to claim monetary damages. A dispute resolution clause should be incorporated. Both parties should read all the terms before signing the contract.