Actions prior to closing: Overview, definition, and example
What are actions prior to closing?
Actions prior to closing refer to the steps and procedures that must be completed before the official closing of a transaction, such as a business acquisition, real estate deal, or other significant agreements. These actions typically involve finalizing details, conducting due diligence, obtaining necessary approvals, and ensuring that all conditions outlined in the contract are met. The goal of these actions is to ensure that both parties are prepared for the final closing and that no unforeseen issues arise at the last moment.
In the context of a real estate transaction, for example, actions prior to closing might include securing financing, completing inspections, and reviewing the contract. In a business acquisition, it might involve finalizing financing arrangements, reviewing financial statements, and obtaining regulatory approvals.
Why are actions prior to closing important?
Actions prior to closing are important because they ensure that all necessary steps are taken to complete a transaction successfully and without any unexpected obstacles. These actions help to verify that the terms and conditions of the deal are being met, that both parties are in agreement, and that any risks or potential issues are addressed before finalizing the agreement.
For businesses or individuals involved in a transaction, completing these actions helps avoid delays or complications at closing, ensuring that the process goes smoothly and that the deal is legally sound. These steps also help protect both parties' interests and minimize the likelihood of a deal falling through due to unresolved issues.
Understanding actions prior to closing through an example
Imagine you are buying a house. Prior to closing, the following actions might need to be completed:
- Financing approval: The buyer finalizes their mortgage approval with the bank.
- Home inspection: A thorough inspection is conducted to identify any potential issues with the property.
- Title search: A search is done to ensure the property’s title is clear and there are no outstanding legal issues.
- Review of closing documents: Both the buyer and seller review the closing documents, including the purchase agreement and any relevant addendums, to confirm that all terms are in order.
Once these actions are completed and any potential issues are addressed, the closing can take place, where ownership of the property is officially transferred.
Example of actions prior to closing clause
Here’s an example of how actions prior to closing might be outlined in a contract:
"The Parties agree that the following actions must be completed prior to the closing date: (1) finalization of financing by the Buyer; (2) completion of any required inspections or appraisals; (3) verification of title and resolution of any encumbrances; and (4) review and approval of all closing documents by both Parties. The closing will take place once all of these actions have been completed and the conditions set forth in this Agreement are met."
Conclusion
Actions prior to closing are critical steps in ensuring that a transaction is completed successfully and that both parties are fully prepared for the official closing. These actions help mitigate risks, resolve any outstanding issues, and provide both parties with the necessary assurances that the transaction will proceed smoothly. By carefully following the steps outlined in the agreement and ensuring all required actions are taken, buyers and sellers can help ensure that the closing process is efficient and free from complications.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.