Contingency period is the window in a commercial real estate contract during which the buyer may terminate and recover its earnest money if a stated condition is not met. Common contingencies cover due diligence, financing, inspection, and title. Once the period expires, those exit rights end and the deposit usually goes hard.
What Is a Contingency Period in Commercial Real Estate?
A contingency period in commercial real estate is the negotiated timeframe in the purchase and sale agreement during which the buyer's obligation to close depends on conditions being satisfied. According to McBrayer PLLC, common contingencies include due diligence, financing, inspection, and title, each giving the buyer a defined right to exit.
The period is the buyer's protection. During it, the buyer investigates the property and its financing, and can terminate and recover the earnest money if a contingency fails. When the period ends, the exit rights tied to it end too, and the deposit typically becomes non-refundable. Different contingencies can run on different clocks: a financing contingency may extend past the general due diligence contingency.
Contingency | What it lets the buyer verify |
Due diligence | Physical, environmental, financial, and legal condition of the asset |
Financing | Whether a loan is available on acceptable terms |
Inspection | Structural, mechanical, and building-system condition |
Title and survey | Clear title, encumbrances, easements, and boundaries |
Estoppel and lease review | That tenant leases and rent match the seller's representations |
Per Smartroom and DataRooms.org, commercial due diligence periods typically run 30 to 90 days, and complex deals can extend to 120 days or more.
Why the Contingency Period Matters
The contingency period matters because it is the only window in which the buyer can walk away without losing its earnest money: after it closes, the deposit is usually at risk. Its length and its contingencies decide how much the buyer can verify before its money goes hard, so the period is where risk is really allocated.
A short period favors the seller. It pressures the buyer to close before it has finished investigating, and it makes the offer more attractive in a competitive process. A long period favors the buyer, who gets more time to find problems while the deposit stays refundable. Per McBrayer PLLC, a buyer who lets a contingency lapse without acting can lose both the exit right and the deposit tied to it.
The quotable point for an operator: the contingency period is the deadline that decides whether your earnest money is still yours. Once it passes, the burden of an undiscovered problem shifts from the seller to you.
Example
A buyer signs a PSA on an office asset at a $5,000,000 price with a 2% earnest money deposit and a 45-day due diligence contingency plus a 60-day financing contingency. The deposit is 0.02 multiplied by $5,000,000, which equals $100,000 in escrow.
Event | Day | Effect on the $100,000 |
PSA signed, deposit funded | Day 0 | $100,000 in escrow, refundable |
Environmental issue found, buyer terminates | Day 30 | Within due diligence; deposit refunded |
Due diligence expires, no exit taken | Day 45 | Due diligence exit ends; deposit at risk |
Loan denied, buyer terminates | Day 55 | Within financing contingency; deposit refunded |
Financing contingency expires | Day 60 | All exits closed; deposit fully hard |
If the buyer finds an environmental problem on day 30, it is inside the 45-day due diligence contingency and recovers the $100,000. If the buyer takes no action and day 45 passes, the due diligence exit is gone, but the 60-day financing contingency still protects the deposit: a loan denial on day 55 still returns the $100,000. After day 60, every contingency has expired and the $100,000 is at risk if the buyer fails to close.
Variations and Edge Cases
A contingency period is not one uniform clock: each contingency can have its own length, its own trigger, and its own consequence. A financing contingency may outlast a due diligence contingency, and a waived contingency removes an exit entirely. The table covers common variants an operator should confirm before signing.
Variant | Treatment |
Stacked contingencies | Due diligence, financing, and title contingencies run on separate clocks |
Contingency waived | Buyer removes an exit, usually to strengthen a competitive offer |
Extension option | Buyer may extend the period, sometimes by making the deposit partly hard |
Deemed approval | If the buyer does not object by the deadline, the contingency is treated as satisfied |
Complex asset | Per Smartroom, periods can reach 120 days or more when the deal is complex |
The most common mistake is missing a contingency deadline. Per McBrayer PLLC, letting a contingency lapse without terminating can be read as acceptance, ending the exit right and putting the earnest money at risk.
Contingency Period vs Due Diligence Period
Contingency period is often confused with the due diligence period, and they overlap, but they are not identical. A due diligence period is one specific contingency: the window to investigate the property's condition. A contingency period is the broader set of conditions, which can also include financing, inspection, and title, each with its own timeframe and exit right.
Due diligence is a subset. Every due diligence period is a contingency, but not every contingency is due diligence: a financing contingency, for example, can run longer than the due diligence window. Treating the two as the same is what causes a buyer to assume it is still protected after due diligence ends, when in fact only the financing contingency remains.
Frequently Asked Questions
How long is the contingency period in a commercial real estate deal?Per Smartroom and DataRooms.org, commercial due diligence and contingency periods typically run 30 to 90 days, and complex transactions can extend to 120 days or more. The exact length is negotiated in the purchase and sale agreement and depends on the asset type, deal complexity, and how much investigation the buyer needs.
What are the main contingencies in a purchase agreement?Per McBrayer PLLC, the main contingencies in a commercial purchase agreement are due diligence, financing, inspection, and title. Each gives the buyer a defined condition and a right to terminate the contract and recover the earnest money if that condition is not satisfied within its period.
What happens when the contingency period ends?When the contingency period ends, the buyer's exit rights tied to that contingency end, and the earnest money deposit typically becomes non-refundable. If the buyer then fails to close without a remaining valid contingency, the seller can usually retain the deposit as liquidated damages.
Related Terms
Purchase and Sale Agreement
Earnest Money Deposit
Due Diligence
Letter of Intent
Estoppel Certificate