Bass, Berry & Sims attorneys Tommy Gossett and McKeehanon Rue authored an article for outlining the use of assignment fees when purchasers need to back out of a real estate deal. With fluctuating interest rates and uncertainty in commercial real estate markets, purchasers may use assignment fees to get out of the deal or even turn a quick profit by locating a new purchaser. The two most common transactions to obtain an assignment fee include a true assignment of the purchase agreement or a separate purchase agreement.

In a true assignment, the original purchaser assigns the purchase agreement to the final purchaser with the original purchaser also assigning all of its due diligence materials. “The original purchaser will also generally make some limited representations as to the nature of the purchase agreement and the accuracy of the due diligence materials being assigned,” the authors said.

A separate purchase agreement can be used when the original purchaser realizes it no longer wants to purchase the property and then shops the property to potential third-party purchasers. From there, the parties enter into a new purchase agreement that largely mirrors the original agreement, but typically with a higher purchase price. “Additionally, the new purchase agreement should build in a requirement that the new purchaser must close directly with the seller to avoid the original purchaser ever having to take title to the property, show up in the land records, or pay any transfer tax at closing,” the attorneys added.

In the article, Tommy and McKeehanon also detailed key considerations when negotiating the original purchase agreement and a new purchase agreement.

The full article, “Want to Back Out of a Real Estate Deal? Consider this Structure,” was published by on June 22 and is available online.