Sales and Purchase Agreement Explained: Definitions and Examples

Key takeaways

• A Sales and Purchase Agreement (SPA) is a legally binding contract that records the terms and conditions under which a buyer agrees to purchase and a seller agrees to sell assets.
• SPAs are common in real estate, business acquisitions, and large or recurring supply transactions where detailed terms, contingencies, and protections are needed.
• Typical SPA components include a clear description of the asset, purchase price and payment terms, due diligence and pre-closing conditions, remedies for breaches or damage, and any confidentiality or contingency provisions.

What is a Sales and Purchase Agreement (SPA)?

A Sales and Purchase Agreement (sometimes called a Purchase and Sale Agreement, PSA) formalizes the negotiated terms between a buyer and seller. Once signed by authorized representatives, it creates legally enforceable obligations for both parties and sets the roadmap for closing the transaction.

How an SPA works

1. Parties negotiate price, terms, timelines, and any contingencies.
2. The agreement is drafted to capture those negotiated terms, often with input from legal counsel or third‑party advisors.
3. The SPA typically defines a due‑diligence period, closing date, payment mechanics, and conditions that must be met before completion.
4. When conditions are satisfied and the SPA is executed, the transfer proceeds according to the contract provisions. Failure to meet conditions or comply with obligations may give rise to termination rights or remedies.

Core components of an SPA

While structure varies by transaction, common sections include:

• Asset identification
• Precise description of what is being sold (e.g., property address and parcel numbers, specific inventory or business assets).
• Purchase price and payment terms
• Total price, deposit amount, how and when remaining balance is paid, and any escrow arrangements.
• Due diligence
• Buyer’s inspection and investigation rights, timelines, required disclosures, indemnification language, and who can bind the buyer.
• Pre‑closing conditions and covenants
• Conditions precedent to closing (regulatory approvals, financing, title matters), seller obligations, insurance and warranty requirements, and exclusivity provisions.
• Remedies and handling of damages
• Procedures and remedies if the asset is damaged pre‑closing or during transit; allocation of risk and levels of damage with associated remedies.
• Broker commissions and fees
• Who pays commissions, the amount or formula, and payment timing.
• Confidentiality and publicity
• Limits on public statements, press releases, and remedies for breaches.
• Contingencies and interdependent transactions
• How the SPA behaves if linked transactions fail (e.g., conditional acquisitions of neighboring parcels).
• Exhibits and supporting documents
• Title reports, surveys, schedules of excluded assets, lists of contracts to be assigned, etc.

SPA length and complexity

An SPA can range from a brief one‑page agreement to a multi‑hundred‑page contract with numerous exhibits. Complexity depends on transaction size, regulatory issues, number of contingencies, and the level of allocation of risk between parties.

Examples of SPA uses

• Real estate: Most residential and commercial closings rely on an SPA to set price, closing date, contingencies (inspection, financing), and title obligations.
• Corporate acquisitions: SPAs specify which assets are transferred (tangible vs. intangible), allocation of liabilities, and any carve‑outs.
• Supply agreements and recurring purchases: Large buyers and suppliers use SPAs to fix prices, quantities, delivery schedules, and forecasting for repeated or bulk purchases.
• Large one‑off procurement: Companies may use an SPA for major equipment or materials purchases to lock in terms and delivery obligations.

Frequently asked questions

Q: Do I need an SPA?
A: While not always legally required, an SPA protects both buyer and seller by documenting rights, obligations, contingencies, and remedies. Without a written SPA, legal recourse after a failed transaction can be limited.

Q: Is an SPA legally binding?
A: Yes. Once signed by authorized representatives and with consideration where required, an SPA is enforceable like other contracts.

Q: Is SPA the same as PSA?
A: Yes. “Sales and Purchase Agreement” and “Purchase and Sale Agreement” are interchangeable terms describing the same contract type.

Practical tips

• Use clear, specific language to describe the assets and payment mechanics.
• Define timelines and who has authority to make decisions for each party.
• Allocate risk (insurance, damage, indemnities) explicitly to avoid disputes.
• When transactions are interdependent, include clear contingency and termination rules.
• Have counsel review or draft the SPA for sizable or complex deals.

Conclusion

An SPA is a central document for formalizing significant transfers of assets. Thoughtful drafting that covers identification, price, due diligence, pre‑closing conditions, remedies, and contingencies reduces ambiguity and lowers the risk of costly disputes.