Mark's Market Musings
Recently, I was asked to provide legal advice regarding a proposed sale of property. My client, the seller, forwarded me a copy of the purchase agreement that the buyer had prepared. The agreement was prepared using an AIR standard purchase and sale agreement and included an extensive addendum covering a panoply of issues relating to the transaction, some of which were already addressed in the AIR form. 
The addendum featured new definitions, changed many of the processes laid out in the AIR form, and (unsurprisingly) shifted more of the risk on the seller. 
I see this approach quite often. Parties believe that using a standard form agreement will be easier and more cost-effective than preparing a custom form for their transaction. There is also likely comfort in using a familiar form that is widely used throughout the industry and across all asset classes.
As is typically the case, this approach resulted in a cumbersome and costly negotiation. Each time changes were made to the addendum, they had to be cross-referenced with the original form. Because the AIR forms are proprietary documents, they cannot easily be changed, resulting in numerous cross-references from the addendum with alterations to the terms. Even the most capable drafter can make mistakes in this process. In addition, rather than having a single contract provision addressing the various terms of the agreement, each term was spread throughout the various documents and exhibits. When it came time to calculate the expiration of due diligence or provide the seller’s required disclosures, all of the parties struggled to piece together their arrangement.
It is easy to understand the perception that a custom form will cost more to prepare than a pre-printed form. But unless all parties are prepared to rely on the form to supply all of the terms without modification – something I have not seen in any deal during my career – using a pre-printed form leaves much to be desired. And, more importantly, this approach risks confusing the terms of an agreement to the detriment of the parties. 
In the hands of a capable attorney, a custom form can be prepared relatively quickly and easily. In common transactions such as sales, attorneys don’t start from scratch. Rather, an attorney will utilize a form previously used in a similar transaction that can be updated to match the particulars of the given arrangement (a fairly efficient process). These agreements allow attorneys to address provisions simply and uniformly, combining duplicative provisions and avoiding the risk of mistake. Custom forms also avoid the risk that key addendums are lost from the original agreement. Finally, both parties can ensure that the terms are fair and match their intended agreement, rather than hoping the pre-printed form supplies terms that work for them.
Can a pre-printed form suffice? Of course. Wise parties to an agreement understand, however, that in order to prepare a fair agreement that matches the parties’ intent and avoids the risk of manipulation or mistake, a custom form is the preferred approach and, in most cases, ultimately saves the parties significant time and expense.
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Mark Ellinghouse 916-558-6091