Purchase and Sale Agreement (PSA) Review Checklist
The Purchase and Sale Agreement (PSA) is the binding contract for a commercial real estate transaction. It converts the LOI's economic terms into operative contract language and governs closing mechanics, due diligence, representations and warranties, and default remedies.
What it is
A PSA is typically 30–80 pages of dense legal language covering every aspect of the property sale. Every PSA is specific to the transaction, but the standard sections and provisions follow predictable patterns that a well-prepared buyer (with counsel) should review systematically.
Who uses it
Buyer's and seller's attorneys draft and negotiate the PSA. The buyer and seller review and sign. The title company and/or escrow agent holds the executed agreement and manages the closing process. Never sign a PSA without attorney review.
Core economic terms
Verify these match the LOI and your expectations:
- Purchase price and adjustments
- Base price plus any prorations (rent, taxes, utilities) and adjustments (credits for repairs or replacement cost of missing items).
- Earnest money schedule
- Initial deposit amount, when it becomes non-refundable ('hard'), and who holds escrow.
- Closing date
- Specific date or 'on or before' date. Extensions typically require mutual consent.
- Risk of loss
- Which party bears the risk if the property is damaged between signing and closing.
Due diligence provisions
The due diligence section governs what the buyer can investigate and when they can terminate:
- Due diligence period
- Calendar days from PSA execution. During this window, the buyer typically has an absolute termination right for any or no reason.
- Diligence materials
- What the seller must provide (leases, T-12, rent rolls, service contracts, environmental reports, surveys).
- Access rights
- When and how the buyer can access the property for inspections.
- Post-due-diligence termination rights
- Narrower rights after the diligence period (e.g., only for title defects, financing, or specific material issues).
Representations and warranties
Seller's reps assure the buyer of specific facts about the property. Buyer's reps go the other way (authority to buy, etc.). Survival periods (how long the reps remain actionable after closing) and damage caps are heavily negotiated.
- Title representations
- Seller's title is good and marketable, subject to listed exceptions.
- Environmental representations
- No known environmental conditions; compliance with environmental laws.
- Lease representations
- Current rent roll is accurate; no undisclosed defaults; no rent prepaid beyond specified period.
- Financial representations
- Operating statements provided are accurate; no material adverse change.
- Authority representations
- Seller has authority to sell; no third-party consents required.
- Survival period
- Typically 6-18 months post-closing. Shorter is seller-favorable; longer is buyer-favorable.
Closing conditions
Conditions that must be satisfied (or waived) before closing occurs. Typical: title insurance can be issued, no material casualty, seller reps remain true, financing delivered (if applicable), tenant estoppels delivered (if required).
Default and remedies
What happens if either party breaches. Typical: if seller defaults, buyer can terminate and recover deposit, or sue for specific performance. If buyer defaults, seller typically retains the deposit as liquidated damages (with rare ability to sue for additional damages).
Common mistakes
- Skipping attorney review — the PSA has countless traps for unrepresented buyers
- Accepting survival periods under 6 months — limits post-close remedies
- Missing tenant estoppel delivery as a closing condition on multi-tenant deals
- Not verifying that the PSA aligns with the LOI — last-minute term changes are common
- Accepting indemnification caps without understanding exposure
Frequently asked questions
How long does a PSA take to negotiate?
Typically 2–6 weeks depending on complexity. Simple single-tenant NNN can go faster; complex multi-tenant or value-add deals take longer. Expect 2-4 redline exchanges.
Should I have an attorney review the PSA?
Yes, without exception. A real estate attorney with CRE-specific experience. Generic corporate counsel often miss CRE-specific provisions. Budget $5K-$25K in legal fees depending on deal size and complexity.
What's a typical earnest money deposit?
1-3% of purchase price is typical. On institutional deals, deposits often exceed $500K. Deposits typically become hard (non-refundable) after the due diligence period expires.