Can I Sign Delaware Profit Sharing Agreement Template

E signature rent to own agreement template

have you ever wanted to know what provisions you need in your lease purchase agreement or as it's known in delaware a conditional sales agreement have you ever wondered what other provisions you may want in your conditional sales agreement have you ever wanted to know how to explain what some of these provisions mean if so stay tuned for all that and much more hi i'm william dolan and this is esquire advice where we explain complicated and lucrative real estate and business topics remember we are not forming a lawyer client relationship by way of this channel always consult your local attorney before taking any action with that said grab a pencil and a piece of paper and get ready to learn [Music] welcome to our episode on lease purchase agreements or as it's known in delaware a conditional sales agreement with a special emphasis on the conditional sales agreement that i use with my investor clients however before we dive in please kindly hit those like and subscribe buttons so we can keep bringing you valuable and profitable content okay a delaware conditional sales agreement is a document that looks vastly different than generic lease purchase agreements agreements for d contracts for deed and installment land sale contracts because a lease purchase type of transaction needs to conform to 25 del c 314. from a lawyer's perspective every transaction can have different facts or issues and states have different laws each of these reasons could create the need for customizing any kind of agreement however between my experience with investors on these kinds of transactions in delaware and how rigid the delaware code is with respect to how to structure them i think this agreement is a good document for an investor doing a lease purchase conditional sale transaction in delaware okay so generally a conditional sales agreement like a real estate agreement of sale must at a bare minimum be in writing identify the buyer and the seller must be signed by both parties must adequately identify the property include the purchase price and possibly a closing date and condition of title but it also needs to include several 25 del c 314 provisions and should include many others to protect you too okay so let's discuss my conditional sales agreement okay so for our conditional sales agreement you're going to notice in the first paragraph this first paragraph essentially covers all of those minimum requirements or most of them so you have the parties names you have the property address also make sure you include the parcel number that makes it absolutely clear which property you're talking about and you know what sometimes there is more than one parcel number if there are make sure you capture all of them all right so we're going to move on to the agreement section so the agreement now we have this concept of you're both there's a lease concept and a sale concept in this conditional sales agreement this is largely because of how 25 delsi 314 is drafted it is a rather confusing and complicated provision and uh we're going to weave that in throughout the discussion so i won't give you a preview quite yet but just to say that you're going to see both of those concepts dealt with in this agreement all right so section two let's see what the purchase price first so the purchase price for the property is let's say it's a hundred thousand dollars here on the first blank you're going to write o n e space 100 h u n d r e d space thousand t h o u s a n d and we've already put the and zero zero slash one hundred dollars then you're gonna put the numerals in after the dollar sign one zero zero zero comma zero zero zero and then we already have the dot zero zero in there for you the now 2b is dealing with the seller financing component of this transaction and so that's what a lease purchase is or at least purchases where the seller is essentially financing the purchase price of the property plus interest to you now i know you may say well we didn't really want to do it that way well unfortunately 25 del c 314 which governs these kinds of transactions tells you you have to do it this way so you have to identify a principal amount of the seller financing so if there's no deposit or there's no down payment rather then it's just going to be whatever the purchase price is right so if the purchase price is 100 000 and the seller's financing the full amount it's going to be 100 000 now i'm just going to mention at this point as well so in this video we're reviewing the buyer version of the conditional sales agreement there is this i do have a seller version of the conditional sales agreement i'm going to talk a little bit about some of the provisions and how they may differ but the one you're actually going to be viewing for the most part is going to be this conditional sales agreement by the buyer all right so section 2b1 the amount of the seller financing again would just talk about that section 2b2 is the interest rate this is where you're going to list what the interest rate is yes you do have to identify an interest rate so what that means is you're going to need to use an amortization calculator you're going to need when you're making this deal to go online type in the loan amount type in the interest rate type in the term and figure out what the payment is you can't just randomly make up a payment i've had clients come to me many many times with this where purchase price is a hundred thousand we've decided uh i'm gonna pay 500 bucks a month and 475 dollars of that is going to go to the principal it that doesn't really work right you you have to think of it as a loan because that's the way the statute's written you it's it's it is construed as a loan so you need to treat it as such you need to identify the principal amount the interest rate the term and the payment section three here subsection three rather is where you're going to list what the payment is and the maturity date so you'll this is where you're going to insert the payments in similar fashion to what you did into the way you did the purchase price a few moments ago same thing with the maturity date on blank blank 20 whatever this agreement shall mature and all unpaid principal and crude interest here under shall be paid um that's indicating when the when the the loan is going to mature now it doesn't have to be a fully amortizing loan it could be a balloon so you could amortize the payments out over 30 years but it could you could have a five-year balloon so that means that the payment is not going to pay them to zero in five years right it would take them 30 years to pay it to zero with that payment but there could be a balloon feature where they basically have to refinance you know they have to go out into the marketplace and get traditional financing to pay you off or we've had situations where the seller then ends up still providing the financing but we transfer title at that point so title gets conveyed and there is a note and a mortgage that's drafted from the seller side so it depends on on the deal that you've made subsection four the amortization schedule this is a requirement under delaware law you have to include an amortization schedule so if it's a balloon it needs to show the balloon at five years if it's a if it's a fully amortizing loan and the term is really 30 years you put the whole 30-year amortization schedule uh as an attachment here and the way we have it set up as schedule a that's just a requirement that you have final settlement we describe in subsection five and this is a concept that goes uh i mean it's described in the delaware code and i just kind of pull it into the agreement just so the language matches up and it's a little bit easier if anyone ever has to go back to the code and look at the code and look at the agreement it's a little easier for them to figure out all right subsection six periodic rental value this is where it starts to get a little tricky right so the the delaware code says that you have to identify a rental value all right so why is that the reason is if the buyer defaults and doesn't cure within 120 days of the default then the matter automatically converts into a landlord tenant matter and the code provides that this agreement needs to predetermine what that rental payment will be if it in fact converts to a landlord tenant matter so you have to decide up front it also puts some limitations on that payment it can't just be the same as the amortizing payment and i know investors would love to do that that's what they always ask me well let's just make them the same the code says no the rental payment cannot be more than 75 of the fully amortized payment the loan payment so that means if your if your loan payments a thousand dollars a month the rental amount that you select in this section cannot be more than 750 dollars 750 or less in that example again this is not a provision that you can just eliminate you can just wave you can just decide to do it a different way this is the way the delaware code requires you to do it so whatever the deposit is going to be is going to be listed in section seven so in similar fashion to the way you would insert the information for the purchase price you're going to write the letters of the the whatever the number is if it deposits ten thousand dollars or a t e n space thousand t h o u s a n d in the first blank and then you would write one zero after the dollar sign comma zero zero 0 for that blank that's in the parentheses so the deposit will be credited to the buyer at closing which is the conveyance of of the deed or if the matter converts remember after the 120-day default if it converts to a landlord-tenant matter then there's a formula and this deposit will become a part of that formula and that's what this is describing it's not an election it's not something necessarily that i think is the best way to do it it is what the code says has to be done and you'll notice in here i have actually cited the delaware code 25dlc section 314d that describes that i've done that in quite a few different places in this agreement i do it for the buyer i do it for the seller i do it for the counterparty's attorney in the deal so that if anyone has any question about well why is this in here they can go look the code up and they can see oh okay that's why this is in here it has to be in here late charges are dealt with in section and i think that concept is is pretty straightforward now section three the buyer default boy this is this is where we really start to get into um into the weeds here so upon buyer's default to make payments due here under within 30 days any such payments becoming initially due seller may find the buyer in default of his obligations under this agreement by delivering notice of such buyer default to the buyer at the buyer's current address okay so you have to provide written notice of the default and the 120 day period that i mentioned starts to run upon delivery of the notice of default so there's a benefit to you to get that notice out as soon as possible on the one hand because you don't want the buyer to be in default for too long and i'll explain to you why in a moment but you want to get that notice out to get that 120 day cure period started if you're on the seller side right so again this we're so kind of going back and forth between buyer and seller on this but trying to understand or explain the dynamics to you on it so the buyer shall have 120 days to pay the outstanding balance of the loan to the seller and any accrued interest and then and then so basically what's going to happen here is there is a there's a formula that is used to determine if this matter conversely landlord tenant matter what credits the the buyer is going to get all right so this is going to be the last part of section three so if the buyer doesn't pay the loan balance the agreement will automatically convert to landlord tenant agreement and the buyer shall be entitled to credit of the sum of all of the loan payments made by the buyer so are you've got to add up all the loan payments since the uncured default and the deposit right so you add up the deposit plus all of the amounts that the buyer paid since the default and then you subtract from that the rental value through the default period so i know this gets a little confusing but let's say there's a ten thousand dollar deposit let's say the monthly payments are a thousand dollars and let's say they made four of those payments during the default period you've got the ten thousand dollar deposit you've got a thousand dollars a month for four months right 120 days so you've got fourteen thousand dollars that gets put on the tenant side of the ledger and then you go back to that monthly rental value which we said had to be seven hundred and fifty dollars or less so let's say it's seven hundred fifty dollars and you have that for four months right because that's that same default period as we use to calculate the thousand dollars so you have what three thousand dollars getting debited against the the buyer tenant so you have fourteen thousand dollars as a credit for the buyer tenant and you have a three thousand dollar debit or deduction so the the buyer has essentially eleven thousand dollars that the buyer can um can get back now the buyer does still have an obligation at this point although the buyer's now a tenant the the buyer tenant has an obligation to keep making those 750 a month payments and if the buyer doesn't make those uh you know you can evict the the buyer tenant at that point to the extent you haven't given the buyer the money back the eleven thousand you're going to have to keep crediting taking off that 750 dollars every month and you're not going to be able to evict the buyer tenant so um now you don't have the right necessarily to just keep that money forever right and keep deducting it really what you should do is give it back to the buyer then the buyer is going to have that obligation to make that 750 a month payment all right section 4 maintenance property taxes utilities insurance so we have in the agreement that as long as it's still a conditional sale right as long as it has not converted to a landlord tenant matter that the buyer is responsible essentially for pretty much everything now that's negotiable right you can it doesn't have to be that way you can decide that the seller's going to be responsible for certain things as well but the benefit of the conditional sale is your out of landlord tenant world and you can put all of this stuff on the buyer so the ben obviously the benefit of that runs to the seller now the flip side of this is uh that if the if the matter converts to a landlord tenant matter you can't do that anymore right you under the landlord tenant act in delaware the buyer cannot be responsible for anything and everything that happens with respect to the property there are limitations now i don't get into the um the weeds on what those are because we didn't this isn't a full-blown delaware lease and a full-blown conditional sales agreement all wrapped into one but what it basically says is if the matter converts then these these obligations on the buyer that aren't allowed under the landlord tenant act they go away right so it just it describes that it doesn't really um get into it blow by blow as to what exactly those changes are going to be but it does explain conceptually and that is to uh to protect all the parties in the transaction section 5 deals with the deals with the closing and when the closing is going to be section 6 is the possession of the property so obviously the buyer is going to have possession because it's a lease purchase buyer's gonna have unobstructed uh possession of the property seven the quality of title so good marketable title it's gotta be insurable at regular rates 8 the apportionment so this is important when the settlement agent is building the settlement statement the settlement agent needs to know who's paying for the real estate property taxes who is paying for the transfer taxes are they being you know transfer taxes are often split 50 50 buyer and seller usually the the property taxes are split as of the day of closing meaning that the seller's responsible for everything up to the day before closing and the buyer's responsible for everything as of the day of closing and afterwards you can modify those a bit and sometimes through negotiation parties do but that's what's described in this agreement because that's the most common way to do it i also include a provision in section 8 here which you could delete which has some cost sharing of the the preparation of the agreement so if you wanted to have the other party help pay for that which i have had happen quite a few times on these agreements so section 9 says reserved and what that means is that that section was omitted so it's in one of the other conditional sales agreements that we use for other purposes but we don't want to change all of the section numbers because there's cross-references in these documents and that's a lawyer's tool to avoid having to re-renumber all the section references throughout the entire agreement all right section 10 the survival section this has the seller's representation surviving closing which is um which is important because otherwise they would not or some of them may not so we want to make clear that the seller's representations with respect to the property are going to survive closing now if you're a a tenant in the property for a decent amount of time this that issue starts to become a little bit less it doesn't completely go away but it's a little bit less important because you're gonna have possession of the property for an extended period of time now that doesn't mean something couldn't have happened a while ago before you got in the property there could have been water damage the seller didn't disclose that to you there could be mold in the walls you you and your family could be getting sick from it if you're on the you know the buyer tenant side so there could be other issues and you want those to survive those obligations to survive as long as possible so that you have some recourse if you're the buyer obviously if you're on the seller side of this then you don't want that right you don't want the seller's representations to survive you want them to to terminate at the time of the conveyance of the deed all right so 11 risk of loss this gets missed in a lot of agreements but essentially what this says is what i think people would expect the terms to be but the reality is if you do not include this in the agreement of sale or the conditional sales agreement then these terms don't apply right at common law as soon as a buyer signed an agreement that gave the buyer the right to buy the property the risk of loss to that property shifted from the seller to the buyer so what does that mean that means if you enter into an agreement of sale to purchase the property for a hundred thousand dollars and the next day the property burns down the buyer still obligated to pay the seller a hundred thousand dollars for this property that's no longer worth what it was the day before and that's just the way it works at common law so we have to change that in these these agreements where you're buying property to make it what i think most people would sort of expect it to be that that risk of loss stays on the seller and if the property gets damaged or destroyed that the buyer has a right to cancel the agreement and get the deposit back right that's that's the way i think people would would want it to work now how does the seller protect itself well the seller can insure the property and and make sure that it's adequately insured and and that way they can the seller can get paid if something happens to the property but a provision where the seller agrees to insure the property is not a substitute for this risk of loss provision i have seen that before just saying the seller agrees to keep the property insured doesn't benefit the buyer it doesn't say the buyer is going to get the insurance money it doesn't say the seller is going to use the insurance money to rebuild the property it doesn't even say what kind of insurance in a lot of these cases the seller even needs to have what if the seller only has liability insurance and doesn't doesn't have actual like insurance to reconstruct the property what if the seller doesn't have an adequate amount of insurance that's another issue what if it would take a hundred thousand dollars to rebuild the property but the insurance is only for sixty thousand well that's not really all that helpful all right 11 b is the similar concept as 11 a with respect to damage to the property but it is with eminent domain so the state decides they want to widen a road right then you you may want to terminate the agreement they're going to take half the yard maybe that's it maybe that's a big deal maybe that changes the dynamics or the value of the property just enough that you don't want to do the deal if you're on the buyer side and even if you're on the seller side i mean that's that's that's not unfair to the seller because the seller should get compensation fair compensation from the state for the loss of that property but it's that's it's the seller right that's the seller's the one who's entitled to that and should uh have to deal with that issue at least from my perspective all right section 12 the assignment sublease so this says that the buyer may assign this agreement without the prior written consent of the seller um it also says that the buyer may sublease the property to another party right so this becomes important on a wraparound type of deal uh now they're not all wrap arounds and they're look there are drawbacks with wraparound deals and we're not going to get into the weeds on on the wrap around deals but i think you if you're going to do some kind of a wrap around meaning you're going to sub lease to someone else or possibly even enter into another conditional sales agreement with someone who's going to buy from you you really ought to disclose on both sides what you're going to do you should describe to your seller if you're the buyer describe to your seller what you're going to do i'm going to sublease this thing i want to sublease it i may even enter into another conditional sales agreement with somebody on the other end and then you need to go the other way to your buyer and say the same thing say hey i my rights in this property are by way of a conditional sales agreement and and the rights that i'm giving you are subject to my rights that i have i'm not the actual title legal owner and you you i think you absolutely need to disclose that because if you don't and this blows up on you what's going to happen is an attorney general or whoever is is investigating it for the state could very easily think you've committed some kind of fraud even civil fraud you could have in court where people think well you know you tried to sell something you didn't own right and yes you could say well i'm the equitable owner and uh you know you do have some of those arguments but you really want to beef those up as much as possible because you don't want to have to deal with those kind of situations so disclosure is your friend and that is true in almost all cases other than when you're you know over disclosing and and and digging your own grave so to speak but generally speaking disclosure's your friend and disclosure can cure a lot of issues you tell people hey this is exactly what i'm doing and not just tell them but put it in a document so they don't get amnesia later right but you've got that documented you can always come back to this and say hey i disclosed to everybody involved exactly what i was doing if somebody didn't like it they should have said something then not at some point after the fact okay so the next section is section 13 seller default so if the seller defaults in any of its obligations under the agreement the buyer shall retain all of its legal and equitable rights and remedies under the law so you want this because if the seller decides not to sell or gets cold feet or whatever the case is you want as the buyer you want to be able to hold the seller's fee to the fire and actually force the buyer to uh or the seller rather to sell the property to you or get monetary damages so you need that to preserve your rights section 14 disclosures the seller has an obligation to make certain disclosures radon and lead-based paint disclosures to to buyers and that's what's happening with this provision is they are in fact making that disclosure to the buyer and it's also notice to the buyer that hey these issues should be on your radar too that you need to be looking out for these kinds of things section 15 of the attorney's fees provision so this is a little bit tricky because if the matter converts to a landlord tenant matter then the landlord can't get attorney's fees from the buyer who at that point is the tenant because the landlord tenant code says you can't do that so that's why i put to the fullest extent permitted by law because there could be some circumstances where that's not feasible it's not allowed by the law but the buyer could get attorney's fees if the seller gets cold feet the seller doesn't want to follow through with the transaction the seller could potentially get attorney's fees and so that is a valuable provision certainly if you're on the buyer side time is of the essence so in a common law it was understood that real estate transactions get delayed it's just the nature of the real estate business so in order to avoid that and make all the dates firm dates you have to have a time is of the essence provision which is what section 16 is section 17 is the whole agreements agreements section and this basically says that all the terms of the deal are in this agreement there's no other components of this deal that are outside of this written document that neither one of us buyer or seller can amend this document unless both of us agree to amend it and sign something indicating that we're doing that except for earlier on where we have that the buyer tenant has the right in section 12 to assign or sublease the property that's already effectively pre-approved back in section 12 and we want to make sure we don't have a conflicting provision here right we don't have one provision that says this can be done unilaterally and then another one that says both parties have to agree to all changes right no so we carve out of this one this other unilateral right basically saying other than this one unilateral thing that the buyer tenant can do other than that both parties need to agree in writing to any changes which i think would be the expectation for everyone shouldn't be a controversial provision section 18 says the delaware law is going to govern the agreement section 19 the counterparts provision says that each party can sign a separate sheet of paper it doesn't have to be the exact same sheet of paper now i would recommend that once everybody signs the agreement that you do assemble a fully executed copy so the the text of the agreement all the signature pages put them all together scan them in and email them to all the parties that are involved if you're exchanging signature pages over email if you're signing them in person print out two full copies and have each copy signed so that each party gets a fully executed original okay also in this provision we we say that you can transmit these documents via pdf and um and exchange them to that degree now there is uh one caveat to that and then if you're really going to record this agreement which we're going to talk about in just a few moments it's a couple of provisions down you can't exchange these signatures via pdf so i will i'll explain that to you in just a moment section 20 severability this um this section says that if a court found one of these provisions not to be enforceable they're not going to invalidate the entire agreement they're just going to invalidate the provisions that the court doesn't like okay section 21 this is one that is different if you're on the buyer side versus the seller side so if you're on the buyer side you want this agreement recorded and why is that because you don't want the seller to be able to sell the property to someone else you you don't want them to be able to vest rights to someone else and so in this situation you want to be able to essentially tie the seller up cloud title so that you this property cannot be sold out from under you ideally you also want to have a limitation that says the buyer or the seller rather cannot go out and get a new mortgage on the property as well now in terms of recording you need to have the document notarized with all the original notarizations and the original signatures in order to record the document with the county so it needs to be notarized if you're going to record it if you're on the buyer side you want it recorded you also want to make sure you do a title search on the property before you give a big deposit to the seller because you know if the seller says well i got one lien on the property for fifty thousand dollars and you know forgot to tell you that he had a second lien on the property for another hundred you know that might be material to you you may not want to take the risk of entering into this deal if that's the case now if you're on the seller side obviously you don't want this document recorded because you don't want the cloud title you want to be able to refinance you want to be able to do whatever you want to do with this property and not have to deal with somebody doing a title search and saying hey what is this document out here i don't know if you can do what you're trying to do because there's a document that says uh there's an issue with that all right section 22 representations and acknowledgements so here the seller is is representing that it's made no uh that has disclosed all of the uh major defects with respect to the property and we incorporate the delaware association of realtors definition for the most part into this section that's important because that survival provision earlier that we discussed it this is a part of what it's helping to survive right this is going to survive closing when you ultimately take title 23 a sealed instrument has the effect does two things one you don't need consideration for a sealed instrument in the state of delaware or at least by a document that's governed by delaware law and also it increases the statute of limitations to 20 years section 24 if you have additional terms that is where you would enter them however if you're going to add additional terms i always recommend that you have an attorney help you construct those additional terms otherwise they may not be enforceable to the extent that you think they are inclusion section 23 anything that you want to be sure is included the dishwasher the range whatever it is put it on there exclusions seller might want certain things excluded write those on there as well and then legal representation so this is a provision it may not be applicable if you're if you're buying the form and doing it yourself it's not really going to be applicable uh very often i've been involved in transactions where i'm drafting it i'm just trying to make sure that everyone knows who i'm representing and who i'm not representing so if you don't need that provision you can just go ahead and delete that provision okay now we have the signature block so and they really are going to so the signature blocks include a notarization as well again contemplating the idea that this document is going to be recorded so you want to have all of the parties [Music] have their signatures notarized and then you'll see schedule a this is where you would insert the amortization schedule that was referenced in the agreement and you do need to fill in some of the terms the interest rate the number of months the payment and if it's a balloon whatever the balloon payment is if there's no balloon that's fully amortized then you can delete the line that says balloon payment because you're not going to need it but you would need to insert the amortization schedule and the delaware code says that the buyer and seller have to acknowledge the amortization schedule so that's why we have this provision in here where buyer and seller acknowledging it and a place for them to sign to go ahead and cover that issue and make sure that that part of the delaware law is is addressed so i know this document probably above any other document is one of the more confusing ones ones because of the complexity of the delaware code with respect to this issue so i do consultations on this concept whether it's discussing the agreement of sale in more detail whether it's discussing how to structure it although we do charge for that but you can reach out to me at w dolan dolan law pa.com if you'd like to schedule a consultation it's w dolan d-o-l-a-n at dolan law pa.com we also have lots of other real estate llc and business topic videos that you can take a look at for additional information but please kindly hit those like and subscribe buttons so we can keep bringing you valuable and profitable content with that said thanks for watching and i'll see you next time [Music] you