Real Estate Investor Agreements in Virginia
When two or more investors work together to sell a property or when one investor or group of investors buys property from another investor or group of investors, at least one contract is usually executed. In most circumstances, the parties execute a contract to buy and a non-compete agreement. Regardless of which contracts you agree to execute, the contracts must contain certain things:
~ Identify the Members: The contract must name the parties or members involved. The full name and address of each party is listed, generally in the first paragraph of the contract. The identification paragraph also lists each person’s title within the company, if the contract is forming a partnership or other entity.
~ Delegation of Tasks: The contract spells out what is expected of the parties. In a purchase agreement, the contract outlines what is expected from the seller of the property and the purchaser, including time to close, down payment, purchase price and other requirements. If the contract is a non-compete agreement, after identifying the parties, it spells out what information cannot be disseminated to outside parties.
~ Determine How the Group Will Be Managed: If the contract is between investors that are combining expertise and skills to work in a partnership or other business entity, the contract may be similar to an employment contract. It spells out what is expected from each investor to further the business interests. It may include such things as splitting commissions, notification of other members when property is purchased or sold and sharing information on deals.
~ Exit Strategy: The contract should also state what happens if one of the parties breaches the contract. A breach is when one party does not abide by the contract and is usually considered specific performance. The contract needs to state whether the parties require arbitration before going to court, and if one investor takes the other to court, where the court action may be filed if the parties live in different areas. If all parties to the contract live in the same county, it is usually understood that the lawsuit will be brought in that county, but in the event one of the investors moves, it should still state which county.
A good agreement anticipates all situations (i.e. potential litigation or disputes). Even if the investors are family members, you should draft contracts. There is an extra caution when working with family members: Because a person is a relative, she may think she can get away with something, where a stranger would not attempt to do something that he knows you would not agree with. A well-drafted agreement avoids many disputes and keeps both parties or entities “on the path,” as each person’s contribution and actions are outlined in the agreement. If you are asked to sign an agreement, be sure to read the entire agreement, as a person can put whatever he wants in a contract.
If you are buying or selling property with another person or entity, give my office a call to discuss your interests before you make a mistake.
NOTICE: The above information is general in nature, and is offered to increase public knowledge and awareness. It is not designed to provide advice on specific case situations. Contact Ryan C. Young to explain your unique situation.