What is a conditional offer in commercial real estate?

What is a conditional offer in commercial real estate?

A conditional offer in commercial real estate is a written agreement of purchase and sale that is legally binding but subject to the fulfillment of specified conditions within a defined period. Until all conditions are satisfied and waived in writing, the transaction is not firm and either party may have the right to terminate. In GTA industrial real estate transactions, the most common conditions include: financing condition (the buyer must secure satisfactory mortgage financing within a set period, typically 10 to 20 business days); due diligence condition (the buyer must complete their review of financial records, leases, environmental reports, building condition assessments, and zoning confirmation); environmental condition (a Phase 1 ESA and sometimes a Phase 2 ESA must be completed and found satisfactory); and zoning/permits condition (confirmation that the intended use is permitted under the current zoning). The due diligence period in a GTA industrial transaction is typically 15 to 30 business days for standard transactions and 30 to 60 days for larger or more complex properties. During this period, the buyer conducts all inspections, reviews, and investigations necessary to confirm their decision to proceed. Conditional periods are negotiated between buyer and seller. Sellers prefer shorter conditions periods (less uncertainty) while buyers prefer longer periods (more time for thorough due diligence). The deposit — typically 2 to 5% of the purchase price — is paid on acceptance and is refundable if conditions are not satisfied. Once the buyer waives all conditions in writing, the deal becomes firm and the deposit becomes non-refundable. In competitive GTA industrial markets with multiple offers, buyers sometimes offer to shorten or waive due diligence conditions to strengthen their offer — a practice that carries significant risk and should only be done after careful consideration. Michael Law advises GTA industrial buyers and sellers on offer structure, due diligence strategy, and transaction management. Contact Michael at mlaw@lennard.com or (905) 917-2045.