Should a Hawaii Purchase Contract (DROA) Be Used in Purchasing Hawaii Commercial Property?

We have been surprised to see that some Hawaii realtors use the standard Hawaii Purchase Contract form when representing buyers or sellers of Hawaii commercial property as the Hawaii Purchase Contract is clearly written for residential transactions.

Although we believer in using standardize forms whenever appropriate, the Hawaii Purchase Contract contains provisions that are inappropriate for commercial property. Therefore, it seems to us to be more inefficient for attorneys to have to amend the Hawaii Purchase Contract to fit a commercial property acquisition into that form than it is to use the correct form in the first place.

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Here are some example on why the Hawaii Purchase Contract is not as good as a standard Hawaii Purchase and Sale Contract for Hawaii commercial property:

  • The Purchase Contract lightly treats title issues as it makes the purchaser take title subject to any easements, covenants, conditions, reservations or restrictions of record “which do not materially affect the value of the property.” In commercial acquisitions the buyer needs to be able to reject encumbrances, some of which are difficult to quantify as affecting the value of the property.
  • The Purchase Contract only requires staking and a perimeter survey, but does not provide for an ALTA survey which is what the purchaser would want.
  • The Purchase Contract contains references to the Mandatory Hawaii Seller Disclosure law which does not apply to commercial transactions, and which clearly provides that seller’s disclosure is not a warranty of any kind.
  • The Purchase Contract requires mediation and most commercial documents do not require that process as the purchaser may want to go directly to Court to obtain other types of relief.
  • The Purchase Contract does not contain representation and warranties regarding leases or contracts and other matters such as hazardous materials. For the latter the Purchase Contract actually puts the sole burden on the buyer to discover such hazardous materials. In addition, the Purchase Contract does not have indemnification language if any such representations and warranties are breached.
  • The Purchase Contract does not address closing matter such as estoppel certificates from tenants, consents, rent rolls, assignment of leases, bill of sale, assignment of contracts and trademarks. As you can see from the above a Hawaii Purchase and Sale Contract should be used for Hawaii commercial property acquisitions, and not the Hawaii Purchase Contact.

Please contact us to get our assistance in tailoring a Hawaii Purchase and Sale Agreement to your needs.

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