Modifications to the AIR Purchase Agreement (Part 1)

In a prior article, I addressed the issue of Should You Use the AIR Purchase And Sale Agreement? Some sellers believe that the AIR purchase agreement does not contain protections afforded sellers in custom agreements.

It is correct that a custom agreement drafted by a seller’s attorney will typically favor Seller more than the AIR purchase agreement. Nevertheless, to make the AIR purchase agreement more favorable to Seller, Seller can modify the AIR purchase agreement to include some of the provisions found in many custom agreements. The AIR Commercial Real Estate Association has of course designed its forms to allow modifications.

Here are some changes that sellers sometimes make to the AIR purchase agreement:

1.  Property Information Sheet: Paragraph 9.1(a) of the AIR purchase agreement requires Seller to complete the “Property Information Sheet,” which is an AIR form. The Property Information Sheet requires Seller to disclose information relating to 15 different aspects of the Property (such as material physical defects, soils condition, hazardous substances, and unrecorded title conditions), or to state that it has nothing to disclose regarding the various items. Sellers often do not wish to complete the Property Information Sheet, because they believe that doing so exposes them to potential liability. By providing information relating to virtually every aspect of the property (or stating that they do not have any information to disclose about various aspects), some believe it increases the likelihood of Buyer suing Seller after the Closing. Buyers may be more likely to claim that Seller knew of a defect and did not disclose it, or did not properly disclose it. In custom agreements, there is no Property Information Sheet requirement.

Tip: If Seller has such a concern it can modify Paragraph 9.1(a) as follows: it can keep the language in Paragraph 9.1(a) that Seller will make the disclosures required by applicable law, but delete the requirement to provide the Property Information Sheet.

2.  Invasive Testing Standard: Paragraph 14 of the AIR purchase agreement allows Buyer to perform invasive testing during the due diligence period, subject to Seller’s reasonable discretion. During the due diligence period, Buyers may want to perform invasive testing to assess the environmental condition of the Property, to assess seismic issues, or for a variety of other reasons. Sellers are frequently sensitive about the scope of any invasive testing and often change the standard to a sole discretion standard. Accordingly, Buyer would not be able to perform invasive testing without Seller’s approval, which Seller may withhold in its sole discretion.

Tip: If the parties know before opening escrow that invasive testing will be required, one approach is to negotiate the scope of the invasive testing while negotiating the AIR purchase agreement. In that way, Buyer is protected from a situation in which it spends time and money to perform investigations only to find out that Seller will not approve testing that Buyer (or its lender) believes is necessary. And Seller is protected in that the invasive testing will be limited to a scope Seller is comfortable with.

3.  Due Diligence Period: Paragraph 9.1 of the AIR purchase agreement describes a number of inspections which Buyer may undertake. The AIR purchase agreement provides that Buyer has 10-30 days to waive various inspection contingencies. Many sellers (and buyers) prefer to modify the AIR purchase agreement so that there is just one deadline by which Buyer must decide whether it is proceeding with the purchase (in which case Buyer’s deposit becomes non-refundable) or terminating the transaction.

4.  Waiver of Contingencies: Paragraph 9.3 of the AIR purchase agreement addresses the situation in which Buyer disapproves of a Buyer Contingency. In such a situation, the Agreement and Escrow do not terminate. Instead, Seller has 10 days to commit to curing Buyer’s disapproval. If Seller does not commit to curing the disapproval, Buyer has 10 days to terminate. Many sellers prefer that at the expiration of the due diligence period, Buyer is required to make its final decision whether to proceed. Therefore, sellers frequently modify the AIR purchase agreement so that Buyer must send a termination notice before the end of the due diligence period if it wishes to terminate. If it does not send the termination notice, Buyer is deemed to have waived its contingencies, the Deposit becomes non-refundable, and Buyer is committed to purchasing the Property.

Tip: According to this approach, if Buyer has discovered an issue about which it is concerned, it should discuss this issue with Seller prior to the expiration of the due diligence period and attempt to agree on a resolution/cure from Seller (including a potential reduction in the Purchase Price) prior to the expiration of the due diligence period.

In Part 2, I will suggest additional Seller modifications.

What do you think of these modifications?  Post your comments or questions below.

By | 2018-01-31T21:13:15+00:00 June 3rd, 2015|Purchases/Sales|6 Comments


  1. Adam Molnar June 3, 2015 at 10:30 am - Reply

    Great tips! The waiver of contingencies is something we have run into before and wished we had modified the AIR paragraph as you suggested.

    • Usman Mohammed June 3, 2015 at 1:32 pm - Reply

      Thank you Adam! If you would like the specific language that I have used to change Paragraph 9.3 as described above, please e-mail me at I would be happy to send it to you.

  2. Steve Hugill June 3, 2015 at 1:46 pm - Reply

    As to the waiver of contingencies, I often require (in a superseding Addendum) that the Buyer must submit a letter to Escrow and Seller affirmatively waiving all contingencies by the designated date, the failure of which is deemed disapproval and termination of the transaction. This avoids the issue as to what constituted a particular disapproval or whether Buyer was merely voicing general “objections.” The result is that when the parties then agree to extend time for a specific reason the parties will typically identify the item and the time precisely, and all other matters are expressly approved and no longer at issue.

    • Usman Mohammed June 3, 2015 at 2:14 pm - Reply

      If I understand your approach correctly, you modify the AIR form so that if Buyer does nothing at the end of the due diligence period, Buyer’s inaction/silence constitutes disapproval (and termination of Escrow). Your approach works well. The approach I discussed above is the reverse, where inaction/silence constitutes approval/waiver of contingencies.
      Most of my clients seem to prefer the approach where inaction/silence constitutes approval/waiver of contingencies, and an affirmative termination notice before the end of the due diligence period is required to terminate escrow. It is a matter of preference for the most part, as both approaches work.

  3. Anonymous June 9, 2015 at 2:33 pm - Reply

    How about changing the title and escrow fees to per the county tradition of the location of the property? Currently is says the buyer and each county is different.

    • Usman Mohammed June 13, 2015 at 5:20 pm - Reply

      Pursuant to Paragraph 8.5 of the AIR purchase agreement, escrow fees are split 50/50 between Buyer and Seller, and Seller pays for a standard coverage owner’s policy of title insurance. If Buyer wishes to obtain an ALTA survey and get extended coverage, the AIR purchase agreement does not state that Seller pays this cost. Therefore, the AIR purchase agreement is interpreted to require Buyer to pay the additional cost of the extended coverage. You may wish to add a sentence to Paragraph 8.5 to clarify this issue.

      Almost all California CRE sales allocate escrow and title fees this way. Unless you have a different arrangement in a transaction you are working on, the AIR purchase agreement does not need to be modified.

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