1988 contract

1988.03.22   (E. A. Prichard to Anthony O'Connell)
"I have your letter of March 18, 1988, enclosing a copy of a proposed contract of purchase for your property located near Cinder Bed Road.
1. Although I have not seem any appraisal of the property, I have the feeling that $800,000 for 15 acres is a little low particularly in view of the contingencies of the contract.
2. $100,000 stands in proportion to $800,000 as an appropriate down payment where one has agreed to take back a purchase money deed of trust.
3. The paragraph describing the deed of trust leaves a number of things unsaid. Since the purchaser signs as trustees they may have in mind that they are not personally liable. I would want personal liability on the note. The deed of trust also does not contain any subordination clause. I would wish a provision that subordination would not be allowed. I would also want the usual waivers and default provisions in the note. There should be a provision in the note that in the event of default in paying any installment of interest or principal, the noteholder will have the option of calling the entire amount immediately due and payable. The contract provides that the deed of trust is assumable. If you were able to obtain personal liability on the part of the purchasers and they are substantial people, I probably would not object to such a provision. However, where we are not sure whether they would be personally liable, I would be unwilling to give them the unlimited right of assignment. There is no way of telling to whom they might sell the property. You might have a difficult time collecting your sales price from another owner.
4. I find that paragraph 4 on contingencies is entirely too liberal as far as the seller is concerned. If, for some reason completely beyond your control, the rezoning is does not take place when expected the purchaser will not be required to close. The result is that you are asked to give a free option to the purchaser from this date until December 30, 1988. Although I am not opposed to a reasonable engineering and feasibility study period, I think that what the purchaser is proposed is unreasonable. They are asking you to give them a nine month's free option. During that period of time you might have many offers for the property and the value of the property might increase.
Paragraphs 5, 6, 7 and 8 are quite usual. Under paragraph 6 I would want copies of all engineering and feasibility studies.
Paragraph 9 limits your remedies to the deposit which I believe is quite small in comparison with an $800,000 price. This brings me to another point. It is likely that the property has not been surveyed in recent times. If that is the case, then the purchaser should be required to choose whether the sale will be by the acre of by the foot, on the one hand, or in gross, on the other. The contract seems to be drawn for a gross selling price of $800,000. If it turns out that there is more area than you suppose by the acre sale might give you an advantage. The same comment concerning the assignment of the contract that I have stated above for the assumption of the debt.
I believe that paragraph 13 should contain an indemnification so that you will be completely exculpated and held harmless from any commission payable to Turner.
My last comment is that the contract is not very artfully drawn. It lacks many clauses which most well drafted real estate contracts have. For example, it has no provision directing that the contract be construed in accordance with Virginia law. Secondly, I have no information as to the identify of the purchaser. I believe that before I would sign a contract of sale to a stranger, I would want some financial information.
The forfeiture provision lacks mutuality. The purchaser has the right to walk away from the contract even after the December deadline by leaving a $25,000 deposit in escrow. There is no right of specific performance to require the purchaser to close. If you are willing to accept the forfeiture of a deposit as a sole remedy on default by the purchaser then I believe that the deposit should be greater. I believe it should be at least $75,000.
My last comment has to do with the wisdom of selling the property now, at a time when the fate of the adjacent property has not been determined. Property has been rapidly appreciating in value in recent years. A number of factors influence value. Obviously, rezoning is one. Transportation is another. The scarcity of the product is the third. It occurs to me that you probably would be unwise to sell the property when the fate of the adjacent property has not been determined. The value of the property could well go up dramatically after the adjacent property is rezoned and construction is underway. I see
no real advantage of selling at the present time and suggest that you would be better off supporting the rezoning application of your neighbor, trying to influence the Department of Environmental Management to extend a street to your property through the property now under consideration for rezoning and then sell it.
I do not know Mr. Newbill. I may have met Mr. Highman. I am not sure. At any rate, they are not well known developers. My guess is that they are speculators.
Sincerely yours, E. A. Prichard"