Memorandum of sale: Overview, definition, and example
What is a memorandum of sale?
A memorandum of sale is a written document that outlines the key terms and conditions of a sale agreement, typically used in real estate transactions. It serves as a formal confirmation of the agreement between the buyer and seller and records the details of the transaction, such as the purchase price, property description, and any conditions that apply to the sale. The memorandum of sale is often the first step toward the creation of a formal contract for the sale and may be used as a reference throughout the completion of the transaction.
The memorandum of sale is not a legally binding contract but acts as an agreement to proceed with the transaction and typically precedes the signing of a more detailed, legally binding sale agreement.
Why is a memorandum of sale important?
A memorandum of sale is important because it provides a clear, written record of the essential terms of a sale, ensuring that both parties have a mutual understanding of the transaction. It also serves as an initial document that can be referenced during the negotiation or contract drafting process. In real estate transactions, a memorandum of sale allows both the buyer and seller to formalize their intention to proceed with the sale before entering into a more comprehensive agreement.
For both buyers and sellers, the memorandum helps clarify the agreed terms and sets the stage for the formal contract, reducing the potential for misunderstandings and disputes later in the process.
Understanding a memorandum of sale through an example
Imagine a person, Sarah, has agreed to sell her property to John. They both agree on a sale price and other terms. To formalize this understanding, Sarah and John, with the assistance of their respective agents, create a memorandum of sale. This document details the purchase price, the property address, and any specific conditions related to the sale, such as a requirement for the buyer to secure financing or the seller to complete certain repairs before the sale is finalized.
Once signed, the memorandum of sale allows both parties to proceed with the process of finalizing the sale, including drafting and signing the formal sale agreement and transferring the property title.
Example of a memorandum of sale clause
Here’s how a memorandum of sale clause might appear in a real estate transaction:
“This Memorandum of Sale confirms the sale of the property located at [Property Address], for the agreed purchase price of $[Amount]. The Buyer, [Buyer’s Name], and the Seller, [Seller’s Name], have agreed to proceed with the transaction, subject to the following conditions: [list any conditions, such as the buyer securing financing or seller making repairs]. The formal sale agreement will be drafted and executed following the completion of the necessary steps outlined in this document.”
Conclusion
A memorandum of sale is a key document in the process of buying and selling property, providing a formal written record of the agreed-upon terms and conditions. While it is not legally binding like a full sale contract, it serves as an important preliminary step that ensures both parties understand their obligations and intentions.
For business owners, buyers, and sellers involved in property transactions, understanding the role of the memorandum of sale can help streamline the process and reduce the risk of disputes. It offers clarity on the agreed terms before moving to the more detailed and legally binding sales contract.
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.