Ask a lawyer:
What should be included in a Real Estate Purchase Agreement?

mwakili.com

A Real Estate Purchase Agreement (REPA) is a legally binding contract between a buyer and a seller outlining the terms and conditions of a property purchase. It is a crucial document that protects the interests of both parties and ensures a smooth transaction.

Introduction
Essential Elements of a Real Estate Purchase Agreement 2.1. Identification of Parties 2.2. Description of the Property 2.3. Purchase Price and Payment Terms 2.4. Closing Date and Time 2.5. Earnest Money Deposit 2.6. Contingencies 2.7. Representations and Warranties 2.8. Default and Remedies 2.9. Closing Costs 2.10. Title and Survey 2.11. Disclosures 2.12. Entire Agreement Clause 2.13. Governing Law and Dispute Resolution 2.14. Signatures
Case Laws
Conclusion
TLDR

Introduction

In Kenya, the REPA is a critical document in real estate transactions. It outlines the agreed-upon terms between the buyer and seller, ensuring a clear understanding of their respective obligations and rights. The REPA should be drafted carefully and reviewed by a legal professional to ensure it accurately reflects the parties' intentions and protects their interests.

Essential Elements of a Real Estate Purchase Agreement

A comprehensive REPA should include the following essential elements:

2.1. Identification of Parties

The REPA should clearly identify the buyer and seller by their full legal names and addresses. This ensures that the parties involved are easily identifiable and that there is no ambiguity regarding who is bound by the agreement.

2.2. Description of the Property

The REPA should provide a detailed description of the property being purchased, including:

Legal Description: This is a precise description of the property's boundaries, often using metes and bounds or a lot and block number.
Address: The street address of the property should be included for easy identification.
Property Type: The type of property, such as a single-family home, condominium, or commercial building, should be specified.
Size and Dimensions: The REPA should state the property's size in square feet or acres and include any relevant dimensions.
Improvements: Any improvements on the property, such as a swimming pool, garage, or fence, should be listed.

2.3. Purchase Price and Payment Terms

The REPA should clearly state the agreed-upon purchase price and the payment terms, including:

Purchase Price: The total amount the buyer will pay for the property.
Down Payment: The amount the buyer will pay upfront at closing.
Financing: If the buyer is obtaining financing, the REPA should specify the type of loan, the interest rate, and the loan term.
Closing Costs: The REPA should outline who is responsible for paying closing costs, such as title insurance, property taxes, and transfer fees.

2.4. Closing Date and Time

The REPA should specify the date and time of the closing, which is when the buyer and seller will meet to finalize the transaction. This date should be realistic and allow sufficient time for all necessary steps to be completed, such as obtaining financing, conducting a title search, and preparing the deed.

2.5. Earnest Money Deposit

The REPA should specify the amount of the earnest money deposit, which is a sum of money the buyer provides to the seller as a sign of good faith. The earnest money deposit is typically held in escrow by a third party, such as a real estate agent or attorney, until closing. If the buyer defaults on the agreement, the seller may be able to keep the earnest money deposit.

2.6. Contingencies

Contingencies are conditions that must be met before the buyer is obligated to purchase the property. Common contingencies include:

Financing Contingency: This allows the buyer to back out of the agreement if they are unable to obtain financing.
Inspection Contingency: This allows the buyer to have the property inspected by a qualified professional and to terminate the agreement if the inspection reveals significant defects.
Appraisal Contingency: This allows the buyer to terminate the agreement if the property is appraised for less than the agreed-upon purchase price.

2.7. Representations and Warranties

The REPA should include representations and warranties from both the buyer and seller. These statements assure the other party that certain facts are true and that the property is in a certain condition. For example, the seller may warrant that they have good title to the property and that there are no known defects.

2.8. Default and Remedies

The REPA should outline the consequences of a breach of the agreement, including:

Default: This occurs when one party fails to fulfill their obligations under the agreement.
Remedies: The non-defaulting party may have various remedies, such as terminating the agreement, seeking damages, or obtaining specific performance.

2.9. Closing Costs

The REPA should specify who is responsible for paying closing costs, such as:

Title Insurance: This protects the buyer and lender against claims to the property's title.
Property Taxes: The buyer may be responsible for prorated property taxes for the period they own the property.
Transfer Fees: These are fees charged by the government for transferring ownership of the property.

2.10. Title and Survey

The REPA should address the title to the property and any necessary surveys:

Title Search: The buyer should conduct a title search to ensure that the seller has good title to the property and that there are no liens or encumbrances.
Survey: A survey may be required to verify the property's boundaries and to ensure that there are no encroachments.

2.11. Disclosures

The REPA should include disclosures from the seller about the property's condition, including:

Material Defects: The seller should disclose any known material defects, such as structural problems, environmental hazards, or zoning violations.
Homeowner's Association: If the property is subject to a homeowner's association, the seller should disclose any relevant information, such as the association's rules and regulations.

2.12. Entire Agreement Clause

The REPA should include an entire agreement clause, which states that the agreement constitutes the entire understanding between the parties and that any prior agreements or representations are superseded. This clause helps to prevent disputes arising from oral agreements or prior communications.

2.13. Governing Law and Dispute Resolution

The REPA should specify the governing law and the method for resolving disputes:

Governing Law: This specifies the jurisdiction whose laws will govern the agreement.
Dispute Resolution: This outlines the process for resolving any disputes that may arise, such as mediation or arbitration.

2.14. Signatures

The REPA should be signed by both the buyer and seller, indicating their agreement to the terms and conditions. The signatures should be witnessed by a notary public to ensure their authenticity.

Case Laws

**Case: ** Mburu v. Njuguna (2003) eKLR
- Facts: The case involved a dispute over the sale of a piece of land. The buyer had paid a deposit but later refused to complete the purchase. The seller sued for specific performance.
- Outcome: The court held that the buyer was obligated to complete the purchase, as the REPA was a valid and binding contract.
- Relevance: This case highlights the importance of a well-drafted REPA that clearly outlines the parties' obligations and remedies in case of a breach.
Case: Karanja v. Kamau (2010) eKLR
- Facts: The case involved a dispute over the sale of a house. The buyer had paid a deposit but later discovered that the seller did not have good title to the property. The buyer sued for a refund of the deposit.
- Outcome: The court held that the buyer was entitled to a refund of the deposit, as the seller had breached the REPA by failing to provide good title.
- Relevance: This case emphasizes the importance of conducting a thorough title search before entering into a REPA to ensure that the seller has good title to the property.
Case: Otieno v. Omondi (2015) eKLR
- Facts: The case involved a dispute over the sale of a piece of land. The buyer had paid a deposit but later discovered that the property was subject to a lien. The buyer sued for a refund of the deposit.
- Outcome: The court held that the buyer was entitled to a refund of the deposit, as the seller had breached the REPA by failing to disclose the lien.
- Relevance: This case underscores the importance of the seller's duty to disclose any known material defects or encumbrances on the property.

Conclusion

A well-drafted REPA is essential for a smooth and successful real estate transaction in Kenya. It protects the interests of both the buyer and seller by clearly outlining their obligations and rights. It is crucial to consult with a legal professional to ensure that the REPA accurately reflects the parties' intentions and complies with Kenyan law.

TLDR

A Real Estate Purchase Agreement (REPA) is a legally binding contract between a buyer and a seller outlining the terms and conditions of a property purchase. It should include essential elements such as identification of parties, property description, purchase price and payment terms, closing date and time, earnest money deposit, contingencies, representations and warranties, default and remedies, closing costs, title and survey, disclosures, entire agreement clause, governing law and dispute resolution, and signatures.

Sample Real Estate Purchase Agreement

Real Estate Purchase Agreement

This Real Estate Purchase Agreement (the "Agreement") is made and entered into as of [Date], by and between [Seller Full Name], residing at [Seller Address] (the "Seller"), and [Buyer Full Name], residing at [Buyer Address] (the "Buyer").

WITNESSETH:

WHEREAS, Seller is the owner of the real property located at [Property Address] (the "Property"); and

WHEREAS, Buyer desires to purchase the Property from Seller on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows:

1. Purchase and Sale of Property

Seller agrees to sell and convey to Buyer, and Buyer agrees to purchase from Seller, the Property, subject to the terms and conditions of this Agreement.

2. Purchase Price and Payment Terms

The purchase price for the Property shall be [Purchase Price] (the "Purchase Price"). The Purchase Price shall be paid as follows:

[Down Payment Amount] shall be paid by Buyer to Seller upon the execution of this Agreement as an earnest money deposit (the "Earnest Money Deposit").
The balance of the Purchase Price shall be paid by Buyer to Seller at the closing.

3. Closing Date and Time

The closing shall take place on [Closing Date] at [Closing Time] at [Closing Location] (the "Closing").

4. Earnest Money Deposit

The Earnest Money Deposit shall be held in escrow by [Escrow Agent Name] (the "Escrow Agent"). The Earnest Money Deposit shall be applied towards the Purchase Price at the Closing. If Buyer defaults on this Agreement, Seller may retain the Earnest Money Deposit as liquidated damages.

5. Contingencies

This Agreement is subject to the following contingencies:

Financing Contingency: Buyer shall have [Number] days from the execution of this Agreement to obtain financing for the Purchase Price. If Buyer is unable to obtain financing on terms acceptable to Buyer, Buyer may terminate this Agreement by providing written notice to Seller.
Inspection Contingency: Buyer shall have [Number] days from the execution of this Agreement to have the Property inspected by a qualified professional. If the inspection reveals material defects that are not acceptable to Buyer, Buyer may terminate this Agreement by providing written notice to Seller.
Appraisal Contingency: Buyer shall have [Number] days from the execution of this Agreement to have the Property appraised by a qualified professional. If the appraisal value is less than the Purchase Price, Buyer may terminate this Agreement by providing written notice to Seller.

6. Representations and Warranties

Seller represents and warrants to Buyer as follows:

Seller has good and marketable title to the Property.
The Property is free and clear of any liens or encumbrances, except as disclosed in writing to Buyer.
Seller is in possession of the Property and has the right to sell it.
Seller has not received any notices of violations of any applicable laws or regulations.

7. Default and Remedies

If either party defaults on this Agreement, the non-defaulting party shall have the right to pursue any and all remedies available at law or equity, including, but not limited to, the following:

Termination of this Agreement.
Specific performance.
Damages.

8. Closing Costs

The following closing costs shall be paid by the parties as follows:

[Closing Cost Item 1] shall be paid by [Party Name].
[Closing Cost Item 2] shall be paid by [Party Name].

9. Title and Survey

Seller shall provide Buyer with a marketable title to the Property at the Closing. Buyer shall have the right to conduct a title search and to obtain a survey of the Property.

10. Disclosures

Seller shall disclose to Buyer any known material defects in the Property, including, but not limited to, the following:

Structural problems.
Environmental hazards.
Zoning violations.
Homeowner's association rules and regulations.

11. Entire Agreement Clause

This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, representations, and understandings, whether oral or written.

12. Governing Law and Dispute Resolution

This Agreement shall be governed by and construed in accordance with the laws of the Republic of Kenya. Any dispute arising out of or relating to this Agreement shall be settled by binding arbitration in accordance with the Arbitration Act, 1995.

13. Signatures

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

Seller:

[Seller Signature]

[Seller Printed Name]

Buyer:

[Buyer Signature]

[Buyer Printed Name]