During a recent forward sale transaction a client declared “Forward Sales should be illegal!”. What prompted this outburst was the limited ability of a buyer under such an arrangement to withdraw from a transaction and some often unforeseen grey zones.

A forward sale is often structured as the obligation to purchase a property after the seller completes construction and often achieves certain leasing thresholds in exchange for a certain price often determined ?based on a formula using a cap rate and leased area and leases are often subject to either some form of approval rights of the buyer or a leasing policy that sets forth certain leasing parameters.

The vendor is usually entitled to close? upon delivery of a variety of items such as as built plans, completion certificates, area certificates, leases, estoppels, title, zoning, enviro and building condition reports together with a calculation of the purchase price.

The fun usually begins with the quality of the deliveries and any discrepancies that may be disclosed not to mention the purchase price calculation (although that is usually subject to arbitration).

Possible areas of contention could include quality of tenants and tenant mix, premises measurements, quantification of adjustments for estoppel disclosures, title issues or encroachments, building deficiencies and whether the quality of some of the deliveries? is equivalent to failure of delivery.

As the same client said “sounded like a good idea at the time.  Forward sales are the exact opposite of the famous principle: if you want something done right, do it yourself”.