Purchase agreements, options, leases, and notes

A purchase contract coordinates price, financing, deposits, title, investigation, disclosures, closing, possession, and remedies. A familiar printed form is still a contract whose completed blanks, checked boxes, attachments, and amendments matter. Two agreements using the same form can produce different results.

Start with parties and property. Confirm who owns the interest being sold and who has authority to sign. The description must identify the intended property adequately. Address personal property separately when necessary: a deed conveying a home does not automatically transfer every movable item the buyer saw during a showing.

Then reconcile the money. Purchase price should equal the agreed components, such as deposit, additional cash, and financing. The buyer's closing costs are separate from the purchase price unless expressly included in a calculation. A seller credit affects the closing allocation but does not necessarily reduce the stated price or the amount used for every other computation.

A financing provision should identify the expected loan and the parties' obligations if the loan cannot be obtained. Seller financing introduces a note and security documentation rather than merely adding the words "seller will carry." Principal, interest, payments, maturity, security, priority, and applicable disclosures affect the bargain.

Title provisions describe the interest and condition of title to be delivered. An existing easement may be an accepted exception, while an undisclosed judgment lien may need removal. The purchase contract, preliminary title information, and escrow instructions should be consistent about what must happen before closing.

Closing and possession are distinct. A buyer can acquire title before receiving possession under an agreed seller occupancy arrangement. Early possession before closing raises different risks because the expected transfer has not yet occurred. Clearly document rent, deposits, insurance, responsibility for damage, and the consequences if the sale fails; do not treat moving in as a harmless informal favor.

Default casualty rule: title OR possession matters. Unless the contract expressly provides otherwise, Civil Code section 1662 separates two stages:

Early possession can therefore change the default result even before the deed transfers. Read an express risk-allocation clause before applying this statutory default. Section 1662.

An addendum adds terms; an amendment changes an existing agreement. The word used on the page is less important than timing and substance, but the parties should know whether a document is part of the original offer or a later modification requiring assent. Conflicting language should be resolved before performance, with legal assistance when interpretation is uncertain.

A purchase option gives the optionee a right to purchase on stated terms within a specified period. The optionor is bound to honor a valid exercise, while the optionee generally is free to let the option expire. Consideration supports the option commitment, and applicable writing rules must be satisfied.

The option price and option consideration are different. A buyer might pay $4,000 for a ninety-day right to purchase at $500,000. Whether the $4,000 is credited toward the purchase price depends on the contract. It is not automatically a refundable earnest-money deposit or an addition to the sale price.

Exercise must follow the specified method, deadline, and other conditions. A notice sent late or proposing a different price may fail to exercise the option. Once properly exercised, the resulting purchase obligations are analyzed according to the option and applicable law.

A right of first refusal ordinarily gives its holder an opportunity when the owner decides to sell or receives a qualifying offer under the agreement. It does not necessarily allow the holder to demand a sale immediately at a previously fixed price. A right of first offer may require the owner to approach the holder before marketing. The exact trigger and response procedure control.

A lease grants a leasehold right to possess and use property for the agreed term in exchange for rent or other consideration. The lessor grants possession; the lessee receives it. The lessor retains the reversion, meaning the right to possession when the leasehold properly ends.

An estate for years has a fixed term, even if it lasts only six months. A periodic tenancy continues through recurring periods until properly terminated. Tenancy at will and tenancy at sufferance describe different possession situations and should not be used as synonyms for every month-to-month tenancy.

A gross lease generally places specified operating expenses on the landlord; a net lease shifts specified expenses to the tenant. A percentage lease ties some rent to business receipts, often with a minimum base rent. A ground lease concerns land and may contemplate tenant improvements. These labels do not replace reading which taxes, insurance, maintenance, and repairs each party actually promised to pay.

Lease covenants can address permitted use, assignment, subletting, alterations, maintenance, insurance, and defaults. Residential statutory protections can override inconsistent lease language. A lease option combines possession under a lease with a separate purchase choice; it does not automatically make every rental payment equity in the property.

A promissory note evidences a promise to pay. It identifies the maker, payee, principal, interest, payment schedule, and maturity as applicable. A note can exist without real estate security. A mortgage or deed of trust provides security for the obligation by encumbering real property. The debt instrument and the security instrument serve different purposes.

Conflicting terms: Read the note and its security together. Under the general rule described in DRE's finance reference, the note's terms usually control an actual conflict. Suppose the note states 6% interest but its deed of trust states 7%, with no superseding amendment, special priority clause, or other controlling rule. The ordinary answer is 6%, not the higher rate merely because the security instrument was recorded. A term appearing in only one instrument is not necessarily a conflict; do not disregard the security document's other applicable provisions.

A note meeting the Uniform Commercial Code's requirements may be negotiable. Among other requirements, it must involve an unconditional promise or order to pay a fixed amount of money, be payable to order or bearer when required, and be payable on demand or at a definite time, without disallowed additional undertakings. Not every document titled "note" qualifies.

A variable interest rate does not by itself defeat negotiability. Commercial Code section 3112 permits fixed or variable interest amounts or rates, including descriptions referencing outside information. Distinguish uncertainty in the interest calculation from a promise that payment itself occurs only if a project succeeds. The latter raises a different, conditional-payment issue.

An assignment can transfer a note and its related interests, subject to the relevant rules. The lender's beneficial interest in a deed of trust is not transferred to the borrower by a deed of reconveyance; reconveyance is associated with releasing the security after the secured obligation is satisfied. Keep debt transfer and lien release distinct.

For personal property, a security agreement and the Uniform Commercial Code often govern collateral. The older term chattel mortgage refers to personal-property security. A financing statement generally gives public notice of a claimed security interest; it is not the same instrument as a bill of sale, which transfers ownership of personal property.

Under an installment land sale contract, the buyer makes agreed payments while the seller retains legal title until specified performance. The buyer generally receives an equitable interest. This differs from a completed conveyance financed by a seller-held note and deed of trust. Remedies, forfeiture limitations, recording, and existing financing require careful analysis.

For the particular statutory category in Civil Code section 2985, the agreement does not require title conveyance within one year from formation. The section also excludes its specified attached-condominium contracts under a conditional public report. Do not classify an ordinary purchase closing in thirty days as this statutory arrangement simply because the buyer makes an initial deposit and a later payment. Section 2985.

Tenant Rowan pays $2,000 monthly rent and $5,000 for a purchase option. The agreement expressly credits $300 of each timely rent payment and the option fee at closing. After ten qualifying payments, the potential contractual credit is $8,000: $3,000 plus $5,000. Rowan does not own the fee merely because payments were made. Proper option exercise and the required transfer still matter.

Ask what the document does: employment, promise to buy, right to choose, possession, debt, security, or conveyance. A lease is not a deed, a note is not its security, and an option is not an obligation to purchase before exercise. Read amounts and deadlines according to the agreement rather than their everyday labels.