Why You Need an Attorney Before Signing a Commercial Real Estate Contract in Arizona

Standard form contracts feel neutral because both sides sign the same paper, but their default allocations of risk are not symmetric. The Arizona AAR commercial purchase contract, the standard AIR forms, and most broker-provided letters of intent contain provisions that allocate inspection risk, default risk, casualty risk, and dispute-resolution risk in ways that favor whichever party's broker drafted the form. Deposit forfeiture, inspection-period mechanics, financing contingencies, default remedies, assignment rights, and the survival of representations after closing all carry default treatments that almost never favor a buyer who has not pushed back, and rarely favor a seller who has not added protective riders.

Before a commercial buyer signs, the contract should be read with two questions in mind. First, what happens if this deal closes smoothly? Second, what happens if it does not? The first question is usually answered by the broker. The second question is rarely answered by the broker and is the one that determines whether the deal is actually a good one. A negotiated addendum addressing diligence, title objections, casualty, environmental, survival of reps and warranties, and dispute resolution is almost always cheaper than the litigation those provisions prevent.

Diligence and the inspection period are the first place to focus. The standard form gives the buyer a fixed window — often ten to thirty days — to complete physical, environmental, financial, and zoning diligence and to either accept the property, terminate, or negotiate repairs or credits. Whether that window is enough depends entirely on the asset. A single-tenant retail building with current financials and a recent Phase I report may be diligenced in two weeks. A multi-tenant industrial park with deferred maintenance, ground-lease complications, or potential environmental issues needs sixty to ninety days, and the contract should say so. Equally important: the contract should specify that the inspection period does not start until the seller has actually delivered the entire diligence package, and it should list the package contents specifically. Buyers who agree to a short inspection period contingent on documents the seller has not yet produced often find themselves running out of time on a deal they have not been able to evaluate.

Title and survey objections deserve their own provision. The standard form typically allows the buyer to object to title exceptions within a window, requires the seller to either cure or refuse, and gives the buyer the choice to accept the title as-is or terminate. The negotiation point is what counts as a permitted exception, who pays for the title policy and its endorsements, and what survey work is required and at whose cost. ALTA extended-coverage owner's policies with specific endorsements — survey, zoning, access, contiguity, encroachment — are substantially more protective than a standard owner's policy and are usually worth the additional premium on commercial assets.

Default remedies are often the most lopsided section of the contract. Many forms cap the seller's liability for default at return of the earnest money, while preserving full damages and specific performance against the buyer. Sophisticated buyers negotiate either reciprocal liquidated damages or an express right to specific performance and pre-closing damages, with a lis pendens recorded if necessary to preserve the claim. Sophisticated sellers negotiate clear liquidated damages with a damages cap and a waiver of specific performance, and require the buyer to release any lis pendens promptly if the deal terminates. The defaults in the form rarely match either side's actual interests.

Casualty and condemnation provisions are routinely glossed over and routinely matter. If a tenant building burns down or is condemned for a road widening between contract and closing, the contract should specify the threshold at which either party can terminate, which side bears the risk of insurance proceeds, and how rent loss during reconstruction is allocated. The standard provisions are usually workable but should be reviewed against the specific asset.

Assignment rights matter more than most buyers realize. Many buyers contract in their own name and intend to assign to a single-purpose entity formed before closing for liability and tax reasons. The contract needs to expressly permit that assignment without the seller's further consent. Sellers, in turn, often want to limit assignment to entities affiliated with the original buyer and to require notice before assignment, so that the seller knows who is actually closing.

Dispute resolution provisions deserve a careful look. Arbitration clauses with specified rules and venues can be efficient but foreclose appellate review and limit discovery. Forum selection clauses naming Maricopa County are useful for Arizona-based parties but can be problematic for out-of-state participants. Mediation requirements are nearly always a net positive and should be included in any contract that does not already require them. Prevailing party attorneys' fees provisions should be reciprocal and should be drafted with care — the standard form language is workable but not optimal.

Sixteen years of in-house corporate counsel experience taught Patrick that the most expensive litigation almost always traces back to a contract provision that nobody negotiated. The goal is to be the lawyer who reads the document carefully before closing, who flags the three or four provisions that actually matter for the deal at hand, and who is still on the file if a dispute arises later. Engaging counsel after a letter of intent is signed but before the contract is executed is the optimal moment. Engaging counsel after the contract is signed is still worth doing — many provisions can still be modified by addendum — but the leverage is reduced.