What is a Purchase Agreement?

A purchase agreement, also known as sale and purchase agreement is a legal document between the buyer and seller that outlines terms and conditions related to the purchase/sale of goods or property. It creates an obligation for the seller to sell and the buyer to buy the goods on the agreed terms and conditions. 

Mostly, purchase agreements are used in real estate and business transactions where many purchases are made and the goods are delivered over time. It outlines the major details of the transaction like, product details, price, payment terms, delivery details, etc. Having this document ensures legal security and helps both parties set their expectations.

Why do you need a Purchase Agreement?

Generally, when we make purchases we receive receipts. It serves as proof of that transaction but only has limited details. For larger and more complex transactions, we can’t rely on receipts. That’s where purchase agreements come in. The following points highlight the need for purchase agreements:

• Clarity: It provides a comprehensive detail of the whole transaction which will prevent future disputes and misunderstandings. 
• Legal Protection: A purchase agreement is a legal document that protects both the buyer and seller. In case of breach of contract, either party can move legally with the purchase agreement as valid evidence.
• Proper documentation: Having an efficient purchase agreement ensures that all the aspects of the transactions are properly documented. 
• Assurance: Signing a purchase agreement creates an obligation to the buyer and seller. It creates a commitment for both parties to fulfill their obligations.  

What to Include in a Purchase Agreement?

The elements of a purchase agreement depend on the type of the transaction. However, all purchase agreements have the below key elements: 

• Parties Involved: Clearly state all the parties involved in the agreement. Include full legal names, addresses and contact info of both the buyer and seller.
• Agreement date: The date when the agreement is made. This is the start of the contractual obligations and can be used as a reference point for any timelines or deadlines in the agreement.
• Description of the property or products: This section involves a detailed description of the property, goods or services being sold. For physical products, include quantity, quality, model number, etc. If it’s a property, include the address, size and any unique features or conditions.
• Delivery Details: It details how, when and where the goods or property will be delivered. Also, Include delivery date, location, method of delivery and who pays for delivery.
• Price and Payment Terms: This section includes details regarding the payment such as total purchase price, due dates, acceptable payment methods, late payment penalties, etc.
• Warranties: Warranties regarding to the goods should be mentioned in the purchase agreement. Warranties protect the buyer in case they don’t get what was promised.
• Contingencies: These are the conditions that must be met for the agreement to be valid. It allows each party to cancel the agreement if any contingency is not fulfilled. 
• Termination Clauses: The termination clause details the circumstances or situations under which the contract can be terminated. Also include the impact of such termination.