P10-Condition of Premises

                        

Objective Forms

Buyers Form

10.1  Sellers Representation:
      Seller represents and warrants the following:
      A.  The premises and all improvements thereon are in good
order and repair, free of (material) defects in their condition
and installation and conform, without violation, to applicable
federal, state and local laws, rules and regulations.
      B.  The improvements are not on filled ground, are free
from termite and insect infestation, wood destroying fungus and
flooding or water seepage.
      C.  Except as expressly provided in Section "D" hereof, the
premises are serviced by the following utilities, without payment
of connecting fees or expenses, in quantities, amounts and/or
capacities which are adequate for the common and ordinary use of
the premises as a ____________________________________________.


         (i)  Potable Water
        (ii)  Raw Water
       (iii)  Sanitary Sewers
        (iv)  Storm an /or runoff sewers
         (v)  Industrial waste sewers
        (vi)  Electricity
       (vii)  Natural Gas

Sellers Form

10.2  Acknowledgment
      Buyer acknowledges that (i) it has made its own independentY
examination and determination of the condition of the premises
and improvements (other than the condition of title) and the
suitability thereof for Buyer's intended uses, (ii) Seller has
made no representation as to the value, character, quality,
quantity or condition of the premises or improvements on which
Buyer has relied and (iii) the sale of the premises and
improvements is on an "as is" and "where is" basis.



10.3  Disclaimer and Limitation
      Except for those representations and warranties regarding
the title to and ownership of the premises and improvements as
specified in Section ___________ hereof, Seller hereby expressly
disclaims any and all representations, and warranties, express
and implied, in fact or by law, as to the Premises and improve-
ments and makes no representations or warranties with regard
thereto, including, without limitation any representation or
warranties with regard to condition, fitness for a particular
purpose, merchantability or any other warranties arising from a
course of dealing or usage of trade.  Seller shall not be liable
to Buyer for damages of any nature whatsoever relating to the
Premises and improvements (except those warranties regarding
title as set forth in section __________ hereof) including but
not limited to direct, indirect, special or consequential
damages.






Comments:

Seller's Form
    The seller of real property, particularly where improved with
buildings or structures, desires, optimally, to make no
representations as to the condition of that property.  The
burden, consequently, falls upon the Buyer to examine the
property to the extent desired prior to execution of the contract
and either purchase or refuse to purchase in its then existing
condition.

Buyer's Form
    The Buyer of real estate would, optimally, wish the Seller to
warrant and insure that the property (i) is in good condition and
conforms to legal requirements, (ii) is on ground which is
suitable for the improvements and that the improvements are not
contaminated by insects or rot and (iii) that the property is
serviced by those utilities necessary for the Buyer's uses. The
Buyer does not wish to rely upon its examination of the property,
which may be hastily or incompletely made.  Furthermore, even


where the examination is thorough and complete, the Buyer wishes
to be protected from latent defects (those not discernable
through reasonable inspection) which might deprive it of the use
of the property.  Thus, the Buyer desires the risk of defects to
be upon the Seller who is, theoretically, more knowledgeable as
to the condition of its property and which is receiving
compensation (the sales price) for that risk.

Discussion and Alternatives
    In between the Buyer's position of warranty, where the Seller
is an insurer of condition, and the Seller's position of
disclaimer, where the risk of defects is upon the Buyer, there
are a myriad of positions to which the parties might agree in
order to fulfill their specific objectives.
    In the sale of improved realty the condition is ordinarily
the key issue in negotiation of non-monetary terms.  There are a
number of types of clauses which deal with the issue of
condition:  "Warranties and Representations" "Conditions to
Closing" or the submission of documentation evidencing condition
at closing.  Although in many instances the particular bargaining


position of the parties or their knowledge of the property's
condition would allow submissions of evidence of condition at
closing to be appropriate, we have not dealt with that type of
clause. Ordinarily, clauses on "warranties" and "conditions to
closing" are a more certain and effective manner of dealing with
the issue of condition.  Documentation or evidence of condition
is only a backup which can be made a part of the closing
documentation and which is, therefore, dealt with in the section
on closing."
    Where the Seller is willing to accept the position of
warrantor (due, commonly, to the purchaYse price meeting or
exceeding its demands, or the market for competitive properties)
but not the complete and largely unequivocal warranties contained
in the Buyer's form the following changes and additions may be
used to limit or narrow those warranties.
       A dollar limitation may be placed upon the warranty.
       "In the event of a breach of the Seller's warranties con-
       tained in this section, the damages and payments to be
       made by the Seller to cure the breach shall be limited to
       the actual amount necessary to physically cure the


       defective condition of the premises or improvements and
       shall not include any special, indirect or cnsequential
       damages.  In no event shall the Seller be liable for
       payment of a total sum more than _________________________ 
       for any and all breaches of the warranties as to coditions
       made herein."
    The Seller may limit its warranty to those defects or
conditions of which it is aware.
       "Seller represents and warrants that, to the best of its
       actual knowledge:"
    This does not, however, protect the Buyer from those
defectsof which the Seller should have been aware as a reasonable
owner but was not due to its own less than reasonable care.  This
may arise where the Seller knows of symptoms of a problem in the
structure of a building but has not, through negligence or
intentional neglect, investigated the actual source of the
symptom and, therefore, does not have actual knowledge of the
real problem.  The Buyer can deal with this by insertion of the
following language which uses the legal concept of "constructive
knowledge."


         "Seller represents and warranties that, to the best of
         its actual or constructive knowledge and information..."
Constructive knowledge or information is that knowledge or
information of which a reasonably prudent owner would be
possessed.  Thus, the seller may not avoid his warranty by his
own negligence or "intentional" neglect.
     Another means of limiting the seller's exposure to liability
for breach of warranty is to make an inspection prior to closing
in order to determine whether, at that time, the premises are
defect free.  If repairs need to be made the Seller may be
compelled to do so.  Alternatively, he may be given the option of
giving a closing allowance to the buyer.  Finally, there may be a
limitation as to the amount of the total repair allowance.
Examples are as follows:
         "No earlier than __________ days prior to closing, Buyer
         may at (Buyer's or Seller's) expense, have an inspection
         made of the premises and improvements by a registered
         or certified engineer in order to determine whether
         the Seller's warranties contained in this section are
         true and correct.  The engineer shall make a written


         report specifically indicating those representations
         and warranties which are untrue and the nature of the
         defect as well as the construction, actions and cures
         necessary for compliance with the warranties, and the
         cost thereof.

         Seller shall, prior to and as a condition of closing,
         make all such repairs, actions and cures indicated in
         the engineers' report to the reasonable satisfaction
         of that engineer who shall, at such time as those items
         are completed, certify their completion in writing.  In
         no event shall the said repairs, actions and cures delay
         closing by over ________ days."
     
     The foregoing provision absolutely requires the Seller to make
repairs.  This may not be desired by the Buyer which would rather
make those repairs itself.  At the same time the Seller may not 
wish to be unconditionally responsible for the repairs even if they
are extremely expensive and unforeseen.  Here the following provision
may be used in lieu of the second paragraph of the above provision:


         "An allowance, inY the amount specified in the engineer's
         report as being necessary for such repairs, actions and
         cures, shall be made in the purchase price to enable
         Buyer to make those repairs, actions and cures.
         If the sum exceeds $__________ the Buyer may
         accept that sum as full payment and complete the
         transaction or the Buyer may cancel this contract
         by serving notice _______ days after delivery of the
         engineer's report.  In the event of cancellation all
         sums deposited by Buyer shall be returned to it.

    If such inspection provisions are incorporated, ordinarily
the Seller's warranties would end with the inspection and cure.
In such an event the contract would need to provide a statement
that:
         "The warranties and representations contained in this 
         section shall not survive closing."
The parties might, however, continue all or some portion of the
warranties following closing, notwithstanding the inspection
provision.  If so, the following term might be added:


         "The representations and warranties of Seller contained
         in this section, shall, notwithstanding the inspection
         of the premises and improvements as above provided,
         survive closing and merger with the deed."
If the inspection is to be made an appreciable period of time
prior to closing and the warranties do not survive closing, the
following provision is necessary to insure that the property is
the same at closing as when inspected.
         "Seller shall maintain the premises between said in-
         spection and closing, in order that it be substantially
         in the same condition at closing as when inspected."
Before using such a provision, one should note the difficulty of
proving that a defect arose subsequent to inspection.  Thus, the
Buyer should be aware of the practical weakness of that
provision.
    Where it is know that certain defects in the property exist
or that the premises are not serviced by utilities adequate for
the Buyer's purposes, the following language may be used.
         "The Seller further warrants that, as of closing, the
         repairs and other items set forth in Schedule ________


         shall be completed to Buyer's reasonable satisfaction.
         Seller further agrees that, prior to closing, it shall
         cause the premises to be served with water (including
         fire mains for sprinkler and hydrant protection), sewers
         (including storm, sanitary and industrial waste),
         electricity, gas, railroad track access and paved truck
         and automobile roadway access, all in strict and
         complete conformance with those plans and specifications
         contained in Exhibit ______, all at Seller's cost and
         expense.
         
         In the event that such repairs and other items are not
         completed within _______ days of the closing date then,
         and in such event, Buyer shall be entitled to the
         following adjustment in the purchase price.  Seller
         shall supply Buyer with written good faith cost esti-
         mates or contracts, signed by contractors reasonably
         qualified to perform such work, which are proposing or 
         contracting to do the work and supply the materials
         necessary for satisfactory completion of the items in 


         Exhibit ________.  All such estimates and contracts
         shall be totalled and there shall be deducted there-
         from all amounts which Seller has paid to said con-
         tractors (appropriately documented by cancelled checks
         or written receipts) toward completion of the items in
         the above-stated Exhibit, which have not been satisfac-
         torily completed as of that date.  The remaining unpaid
         portion of the totalled estimates and contracts shall
         constitute an adjustment to the purchase price to be
         credited to Buyer at closing."
    The YSeller may consider the Buyer an inappropriate judge of
whether the items to be repaired or installed are completed
satisfactorily.  In such event the language could be changed as
follows:
         "The Seller further warrants that, as of closing, the
         repairs and other items set forth in Schedule ________
         shall be completed to the satisfaction of a certified
         or registered engineer, acceptable to Buyer and
         Seller..."
         "Determinations of completeness of the work done, its


         compliance with the terms hereof and the Buyer's credit
         for incompleted items at closing shall be made by the
         aforestated engineer, whose decisions on these matters
         shall be final and binding."
    Where the Seller is unwilling to represent or warrant the
condition of the property and the Buyer is willing to accept the
general Seller's form of "disclaimer" the Seller may still be
willing to represent that it has no actual or, perhaps,
constructive knowledge of defects.  In such event the Buyer's
form could be amended as follows:
         "Seller represents that it has no actual (or construc-
         tive) knowledge of any latent or patent defects in the
         condition of the premises and the improvements other
         than those set forth in Schedule _______.  Other than
         the foregoing representation, Seller hereby expressly
         disclaims..."
    One must be extremely careful in the drafting of provisions
where a general disclaimer of liability is mixed with a
representation as to having no actual knowledge of a defective
condition.  It should be recognized that the issue of actual or


constructive knowledge is one difficult of proof which, if
litigated, would commonly render unsatisfactory results for both
parties.  In order to make a deal it is sometimes necessary to
fudge the intent of the parties in this manner; however, where
this is done, both parties should be aware of the risks of
unsatisfactory litigation.
    Finally, the parties may treat condition of the premises in
exactly the same manner as condition of land under an
inspection provision where the Buyer may terminate the agreement
in the event the improvements are unsuitable for its uses or are
deemed to be defective.
         "Buyer shall have the right, beginning upon the date
         hereof and ending at 12:00 p.m. on ___________, to
         examine the premises and to conduct such engineering
         and other tests as are reasonably necessary to deter-
         mine whether the Premises and the condition thereof are
         suitable for the Buyer's uses.  If, based upon such ex-
         amination and tests, the Premises are not suitable to
         Buyer and if, within said _________ day period, Buyer
         delivers to seller written notice thereof, this agreement


         shall terminate and all funds deposited or paid by Buyer
         shall be returned to it."
    Most of the discussion regarding inspection provisions in
Section 10 is equally applicable to this type of clause on
"Condition."
    The agreements submitted by members have yielded a number of
provisions dealing with special circumstances, not ordinarily
found.  Following are some of those provisions:

Air Quality Monitoring
    As air quality monitoring is mandatory for certain industrial
uses, it is sometimes necessary to allow for the possibility of
an undesirable result.  As such monitoring may take a number of
months, it is often dealt with in "pure" option agreements as
follows:
         "It may be necessary for Buyer to construct air
         monitoring stations on approximately ____________
         acre(s) of the option property during the term of
         this option.  Seller agrees to such an encroachment
         in a location mutually agreeable to both parties and


         Buyer agrees to remove any improvements so installed,
         if it elects not to exercise the option."

Rail Spur Track Agreement
    AY condition of closing may be completion of a rail spur track
agreement with a railroad.
         "Closing is hereby conditional upon completion and
         execution by Buyer of a rail spur agreement with
         ___________ in form satisfactory to Buyer.  Buyer agrees
         to, in good faith, pursue the negotiation and execution
         of such an agreement."

Prior Casualty
    Where, prior to execution of a purchase agreement, there has
been casualty damage to the Premises, and an insurance claim has
been submitted, the following provision has been used:
         "It is hereby acknowledged that certain fire damage to
         those portions of the premises indicated in Schedule
         _________ remains unrestored.  It is further acknow-
         ledged that the cost of repairing that damage is


         $____________ which amount shall be credited against the
         purchase paid at closing.  In lieu, however, of such an
         adjustment, Seller may assign its remaining claim to the
         pending insurance proceeds of said fire to Buyer;
         provided that Seller submits sufficient documentation,
         in the opinion of Buyer's counsel, that Seller's in-
         surer is holding an equal amount in reserve and subject
         to Seller's claim, pending completion of the
         restoration required under Seller's insurance policy.