June 1-June 14, 2016 —
COLORADO REAL ESTATE JOURNAL
— Page 25
Law & Accounting
T
his is the 12th in a series
of 18 articles that come
fromsome years of expe-
rience using the Colorado Real
Estate Commission-approved
contracts for purchase and sale
of real estate for commercial real
estate transactions. Previous arti-
cles addressed the buyer’s name,
the seller, the property, water
rights, ordering the title commit-
ment, owner’s extended cover-
age, making title objections, off-
record matters and special taxing
districts, and ordering the new
improvement location certificate
or survey. This article addresses
reviewing the new ILC or new
survey (sometimes referred to
below only as the “new survey”
although applying equally to a
new ILC) and making objections
to it.
As to reviewing the new sur-
vey and making objections, the
contract sets out the following
procedure:
1) If the newsurvey is not deliv-
ered by the “new ILC or new
survey deadline” (a date chosen
by the parties), or if, after it is
delivered and the buyer reviews
it, the buyer has any objection it
requires the seller to correct, the
buyer may either terminate the
contract or notify the seller of its
objection before the “new ILC or
new survey objection deadline”
(a date also chosen by the parties
(§9.3).
2) If the buyer makes a time-
ly objection to the new survey,
the seller may respond to the
objection(s), but is not required
to.
3) If the seller does not respond
to the objection(s), or if the buyer
and seller otherwise do not have
a written agreement resolving
the objection(s), the contract
will terminate on the new ILC
or new survey resolution dead-
line unless the buyer withdraws
the objection(s) on or before that
deadline (§9.3).
There are a number of “traps”
in that procedure. These are some
of the same traps in making a
title objection as discussed in the
ninth article in this series. While
the survey provisions in §9 are
similar to the title review pro-
visions in §8, some subtle but
important differences are noted
below.
Trap:
The buyer has the right to
terminate the contract if the new
ILC or new survey is not obtained
by the new ILC
or new survey
deadline even
if the buyer is
responsible for
obtaining the
new ILC or new
survey.
The
seller might
want to add
a clause to the
contract to the
effect that the
buyer waives
all of its rights
relating to survey matters if the
buyer does not obtain the new
ILC or new survey on time.
Trap:
The seller is not in default
under the contract if the seller is
supposed to order and pay for the
new survey but it is not delivered
to the buyer on time.
The contract
simply provides that the buyer
“will receive” the new survey by
the contract deadline; there is no
covenant by the seller to actually
deliver it.
Trap:
The contract does not pro-
vide for an extension of time for
delivery of the new survey.
In many
commercial contracts written by
lawyers, if the survey is delayed,
then the time for delivery is auto-
matically extended, as are other
time periods that are dependent
on having the survey in hand,
such as the time to object to title
and survey matters. This makes
sense since survey work is not
infrequently delayed, and, in any
event, neither the buyer nor the
seller control the surveyor’s per-
formance. The time for closing
may also be extended, but that is
allowed less often.
Trap:
If deliv-
ery of the new ILC or new survey
is delayed, and the buyer and seller
want to keep the contract and the
right to address survey objections
alive, the new ILC or new survey
deadline must be extended, which
can only be accomplished by a writ-
ten agreement (see §26).
Trap:
The buyer has an option to
terminate the contract for a survey
objection; the seller does not.
The
buyer can get out of the con-
tract if any aspect of the survey
is “unsatisfactory” (§9.3). The
seller can get out of the contract
only by refusing to address all
of the buyer’s survey objections.
Sometimes, a survey will reveal
something that would make the
seller want to terminate the con-
tract, or at least renegotiate it. A
not uncommon example is the
seller’s discovery from the new
survey that the acreage of the
property is greater than the seller
thought.
Trap:
A buyer’s survey objection
does not need to be reasonable; it
only needs to be made in good faith.
If the buyer has a survey objec-
tion, the buyer is to deliver to
seller “a written description of
any matter that was to be shown
or is shown in the new ILC or
new survey that is unsatisfac-
tory and that buyer requires sell-
er to correct” (§9.3.2). Section 29
requires the buyer to act in good
faith. Proving in a legal action
that the buyer is not acting in
good faith is very difficult. The
leeway given to the buyer means
the seller rarely can challenge the
buyer’s right tomake a particular
title objection. All the seller can
do is choose not to address it and
risk losing the deal.
Trap:
If the buyer has a survey
objection, it may elect to terminate
the contract under §9.4, without
giving the seller an opportunity to
cure it.
As such, it is easier for
the buyer to get out of the con-
tract based on a survey objection
than it would be if the seller was
automatically given time to cure
a survey objection (a right the
seller might want to add to the
contract).
Trap:
Unlike a title objection
under §8.3 and §8.4, the buyer must
provide “a written description …
that is unsatisfactory” and any objec-
tionmust be one “that buyer requires
seller to correct” (§9.3.2).
Under
that provision, the buyer cannot
simply send the seller a notice
that states, “The buyer objects
to the new survey.” A bit of hon-
esty is required of the buyer, at
least enough to be able to articu-
late what survey objection(s) the
buyer has.
Trap:
The contract does not require
the seller to do anything to cure a
survey objection.
Indeed, the seller
does not even have to respond to
the survey objection. If the seller
does not respond, or the seller
declines to address all of the buy-
er’s survey objections, the buyer
has a choice. It can accept the
survey matters it objected to or
let the contract terminate.
Trap:
That the contract automatically ter-
minates if all survey objections are
not resolved can be tough on a party
that really wants the deal to close
Beat U. Steiner
Partner, Holland &
Hart LLP, Boulder
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