Purchase and Sale Agreement: A Practical Guide for Legal Teams

What Is a Purchase and Sale Agreement?

A purchase and sale agreement (PSA) is a legally binding contract between a buyer and a seller that sets out the terms and conditions governing the transfer of an asset, business, or property. It records the purchase price, identifies the parties and the asset being transferred, and specifies the conditions that must be satisfied before the transaction can close.

PSAs appear across real estate, corporate M&A, and high-value commercial transactions. The agreement typically becomes the controlling transaction document once it is signed and may continue to govern post-closing obligations. It binds both parties to its terms and may provide remedies for misrepresentation and breach.

The terms “purchase and sale agreement” (PSA) and “sale and purchase agreement” (SPA) can refer to similar transaction documents, but they are not universally interchangeable. Both generally describe legally binding contracts governing the sale of an asset, business, or company.

The difference often depends on jurisdiction and transaction context. In the United States, “PSA” is commonly used in real estate and commercial transactions. In M&A, “SPA” often means “Share Purchase Agreement,” particularly in cross-border and international acquisitions. In some jurisdictions, “SPA” can also mean “Sale and Purchase Agreement.” Neither acronym alone establishes the legal structure of the transaction.

These three documents appear in sequence during most transactions, but they serve very different purposes.

DOCUMENT	PURPOSE	LEGALLY BINDING?	WHEN IT APPEARS
Letter of Intent (LOI)	Outlines general deal terms; signals intent to proceed	Generally no, although specific provisions may be binding.	Before due diligence
Purchase and Sale Agreement	Sets binding terms for the transaction	Yes	After due diligence, before closing
Purchase Agreement	Broad term: can refer to the PSA itself or a simpler sales contract	Generally yes, if executed as a contract and subject to its terms.	Varies by context

The LOI is a starting point. The PSA is where the deal becomes real.

Not every transaction requires a formal purchase and sale agreement. The rule of thumb: the more complex the deal, the more critical the PSA becomes.

A PSA, SPA, APA, or similar purchase agreement is a central transaction document in many acquisitions of a company or its assets. Whether structured as a share purchase, in which the buyer acquires shares of the target company, or an asset purchase, in which the buyer acquires specified assets and agreed liabilities, the agreement defines what is being acquired and on what terms.

M&A PSAs cover far more ground than their real estate counterparts. They typically include representations and warranties about the target business, conditions precedent tied to regulatory clearances, indemnification provisions, and post-closing obligations such as employee retention requirements.

For commercial real estate, a PSA governs the sale of property between professional parties — defining what title defects are acceptable, what happens if a survey reveals encroachments, and how costs are allocated at closing. Residential PSAs follow state-specific templates. In California and Washington, licensed agents typically prepare them. In New York, Connecticut, and Massachusetts, attorneys draft and review them.

Outside M&A and real estate, PSAs appear in bulk asset sales, intellectual property transfers, equipment purchases above a certain value, and large-scale supply or licensing deals where standard purchase orders are insufficient.

The common thread: any transaction where both parties need protection, and where performance obligations extend beyond the moment of exchange.

A well-drafted PSA gives both parties a clear picture of what they are committing to. Here are the core components your team should expect to see and scrutinize.

The agreement begins by identifying the buyer and seller precisely: full legal names, jurisdiction of incorporation for entities, and registered addresses. What is being transferred — shares, real property, a defined list of assets, or an entire business — is described in the asset section.

The purchase price clause states the agreed consideration and specifies whether any portion is held in escrow, paid in installments, subject to post-closing adjustments (common in M&A based on working capital metrics), or structured as an earnout tied to future business performance.

Earnest money, sometimes called a good faith deposit, is the buyer’s upfront payment, typically held in escrow until closing. It demonstrates the buyer’s commitment and provides the seller some compensation if the buyer exits without cause.

Contingencies are conditions that must be satisfied or formally waived before the deal can proceed. They may apply to the buyer, the seller, or both. Common examples include:

The closing date sets the deadline for completing the transaction. Missing it without a valid extension clause can put the entire deal at risk.

Representations and warranties are statements of fact made by each party about the subject of the transaction. The seller typically represents that they hold good title to the asset, that financial statements are accurate, that no material litigation is undisclosed, and that the business complies with applicable law. The buyer represents that they have the authority and financial capacity to close.

These clauses matter most when something goes wrong after closing. If a representation proves false, the affected party may have a claim for breach, and that is where indemnification comes in. Indemnification provisions define who pays for losses arising from a breach, subject to negotiated caps, baskets, which are minimum thresholds before a claim can be brought, and time limits.

In M&A, reps and warranties are often among the most heavily negotiated provisions in the entire PSA. Buyers want broad coverage; sellers want narrow definitions and limited liability. Getting these provisions right is where the real legal work happens.

Conditions precedent are contractual conditions that must be satisfied before a party’s duty to perform arises. They may apply to the buyer, the seller, or both parties, and they may overlap with contingencies depending on the agreement and applicable law.

Common conditions precedent in M&A PSAs include:

Covenants govern how each party must behave during the period between signing and closing. Sellers typically covenant to operate the business in the ordinary course, not to solicit competing offers, and to grant the buyer access for due diligence. These interim obligations carry real legal consequences if breached.

The final elements establish what law governs the agreement and what mechanism the parties will use if a dispute arises. Most commercial PSAs specify arbitration or a designated court, and agreeing on this before a dispute occurs is far easier than fighting over jurisdiction during one.

For cross-border transactions, the choice of governing law and dispute resolution forum can materially affect each party’s risk exposure. This section receives less attention than it deserves during negotiations.

Signing the PSA is not the end of the deal. It is the beginning of the most operationally demanding phase.

Between signing and closing, each party must fulfill their obligations under the covenants, satisfy all conditions precedent, and complete due diligence processes. For an M&A transaction, this period can span weeks or months. Regulatory filings are submitted. Third-party consents are obtained. Financing arrangements are finalized. The data room remains active.

Every condition precedent is a milestone. Your team needs to track which are outstanding, who owns each one, and what the deadline is. If an obligation slips through, a consent is not obtained, or a filing is not made, the delay can postpone closing or give the counterparty grounds to terminate.

Addenda and side letters sometimes modify the original PSA during this period. Every amendment must be documented and version-controlled. A clear record of what was agreed is not optional It is your evidence if a dispute arises.

PSA management is harder than it looks on paper. Here are the operational problems legal teams encounter most often.

A complex M&A PSA can go through ten or more negotiated drafts. Manage versions over email, and you are one misplaced attachment away from presenting the wrong draft to a signatory.

PSAs in larger transactions involve external counsel, financial advisors, the counterparty’s legal team, regulators, and sometimes third-party escrow agents. Tracking who has reviewed what, and what is still outstanding, requires a system, not a shared inbox.

Between closing deadlines, regulatory filing windows, due diligence periods, and covenant compliance dates, a PSA generates dozens of time-sensitive obligations. Missing one has material consequences.

The covenants and conditions precedent do not enforce themselves. Someone on your team needs visibility into what is due, when, and from whom, and they need to be alerted before a deadline passes, not after.

According to Gartner, legal technology budgets are expected to double by 2028 as legal AI use expands. Given their complexity and transaction stakes, PSAs are an area where the cost of poor process can be especially high.

The problems outlined above are not solved by working harder. They are solved by having the right system.

DiliTrust Contract Management brings the full PSA workflow into one place. Lini, DiliTrust’s AI assistant, compares redlined drafts by topic, including liability, indemnification, termination so your team sees what changed without manually diffing two 80-page documents. The Risk Detector flags clause deviations against your standard positions before they reach a signatory. Conditions precedent become tracked tasks with owners, deadlines, and automated reminders.

Version control, approval workflows, and e-signature are handled within the same platform. For M&A transactions requiring a secure data room, DiliTrust Dataroom connects directly to the workflow. DiliTrust’s platform is ISO 27001 and SOC 2 Type II certified. The result: your team spends its time on legal judgment, not document administration.

Legal teams that manage purchase and sale agreements at scale need more than a shared inbox. They need a system built for the complexity.

Frequently Asked Questions