Wednesday, May 8, 2013

Seller Representations in Real Estate Sale and Purchase Agreements

Oman’s growing demand for housing, continued focus on building tourism facilities, and strong overall economic conditions have driven the development of many new residential and commercial real estate projects in the Sultanate over the past few years.  In today’s buoyant real estate market, it is as important as ever for buyers and sellers to understand the key terms of the sale and purchase agreements (“SPA”) through which real estate transactions are frequently carried out.

This article discusses one particularly important aspect of a real estate SPA: the types of representations that the buyer should seek to obtain from the seller.  Typically, all of the representations will be included in a section of the SPA titled “Seller’s Representations and Warranties” (or something similar, such as “Seller’s Acknowledgements and Undertakings”).

Representations related to title and no encumbrances

The first thing a buyer will normally seek is assurance that the seller is able to convey to the buyer the full property rights that the seller has promised.  Accordingly, the buyer should ask the seller to represent and warrant that, as of the date of sale, the seller is the sole legal and beneficial owner of the property.  Similarly, the buyer should also ask the seller to include a representation that, as of the date of sale, the property is not subject to any mortgage or other encumbrances.  (In cases where mortgages or encumbrances are present, and the buyer agrees to purchase the property subject to them, these mortgages or encumbrances should be clearly listed in the SPA.)

Representations related to construction and common spaces

In Oman it is common for villas, flats, or office space to be sold ‘off plan’ prior to their construction.  It is also common for both commercial and residential property to be built within larger developments that will feature common spaces to be shared by the various property owners within the development.
In such cases, it is prudent for the buyer to seek representations from the seller (who is often, but not always, the original developer) that:

  • both the property being sold and the common areas pertaining to it shall be constructed in a good and workmanlike manner;
  • the seller will construct the common areas provided for in the development’s master plan; and
  • the construction of the property and the construction of the common areas pertaining to the property shall be finished within the timetable specified in the development’s master plan.
Representations related to permits, development status and approvals

Finally, it is worth noting that in Oman some developments have a special legal status that require a license from the Omani government, such as Integrated Tourism Complexes (ITC) in which non-GCC foreigners are allowed to own property.  Buyers looking to purchase property in a development that has or is slated to have to have ITC status would be prudent to ask for a representation from the seller in the SPA that the property and the larger development will have and will continue to enjoy such ITC status.