The Nuts And Bolts Of Arizona Real Estate Contracts

Buying and selling real estate is typically one of the most significant financial transaction a person will be involved with during their life. These transactions are govered by contracts (agreements) between the buyer and seller of real estate. With some exceptions that may be very difficult to prove, Arizona law requires that real estate contracts be written to be enforceable. The vast majority of real estate transactions in Arizona rely on preprinted contracts developed by the Arizona Association of Realtors ("AAR"), which include boilerplate language developed to cover most common real estate deals. These forms are updated occasionally and they may be revised to meet the needs of a particular transaction.

Arizona Contract Law

Basic contract law applies to Arizona real estate contracts, meaning that for a valid contract to exist there must be an offer, acceptance, consideration (usually money) and sufficient specificity so that the obligations of the parties involved can be ascertained. But as suggested above, real estate contracts must also meet other requirements and usually include specific provisions relating to a real estate transaction that all parties involved should understand.

Real Estate Contracts

On of the most important of the requirements is that a contract for the sale of real property must be in writing and signed by the party to be charged to be enforceable. A.R.S. § 44-101(6). This also means that any amendments or other modifications, to be enforceable, must also be written and signed.

Further, although the signature of one spouse can bind the marital community in some situations, both a husband and wife must sign a real estate contract for the community property to be obligated. Because the signature of both spouses is required in any transaction for the sale of community property, the courts have held that a contract signed by only one spouse is not enforceable against the non-signing spouse. See Geronimo Hotel and Lodge v. Putzi, 151 Ariz. 477, 728, P.2d 1227 (1986). However, the signing spouse’s sole and separate property may be held liable for any breach of the contract. As is the case with the contract in general, any modifications, amendments, or other documents signed in connection with the transaction, should also be signed by both spouses.

In addition to making sure that the parcel, or land, being sold is identified with sufficient specificity, the contract should identify any personal property that is intended to be conveyed with the real property, as well as any fixtures that could be an issue. The goal here is to leave no doubt so that a dispute doesn't arise later.

The reason that personal property and fixtures should be identified, even where it might seem clear to one party, is that the other party may have a very different perception. A fixture is an item that was once personal property but has affixed to the real estate in such a manner as to become a part of the real property. The Arizona courts have described a three-part test for determining when personal property has become a fixture: (1) annexation to the realty; (2) adaptability or application as affixed to the use of the real estate; and (3) an intention of the party to make the object a permanent part of the realty. Murray v. Zerbel, 159 Ariz. 99, 101, 764 P.2d 1158 (app. 1988).

The rule is that the buyer purchases the fixtures annexed to the real property, but not the personal property unless it is specified in the purchase contract. But to avoid years of litigation to clear up what is or isn't personal property, smart drafters will specify all items that are to be conveyed in the transaction, such as water softeners, solar panels, satellite dishes, track lighting, appliances, etc., regardless of whether the drafter believes the items to be fixtures.

Most real estate contracts also specify a date for close of escrow. However, due to circumstances beyond the parties' control, closing if often delayed and courts usually do not regard compliance with the closing date as being required unless the parties have specified that "time is of the essense." The most recent versions of the AAR contracts do include such a clause and also include notice provisions before a contract may be terminated due to most breaches, including breaches due to a failure to close on time. In order to avoid any confusion, a party who is concerned about undue delay should make sure the contract states that  “time is of the essence” and, if possible, identify reasons why a timely closing is essential.

The other significant contract issue with real estate contracts are contingency clauses. A contingency clause is a provision that requires the completion of a specified act before the parties are required to perform their contractual obligations. Contingency clauses in real estate contracts include contingencies related to financing, property condition, and the condition of title, and the parties should make sure they understand these contingencies and that the contract accurately describes their intent. A significant amount of litigation over real estate contracts involves the interpretation of contingency clauses.

If you have any questions related to the drafting or interpretation of an Arizona real estate contract, an Arizona real estate lawyer should be able to help.