What is a Sales and Purchase Agreement?

Also known as an SPA, a sales and purchase agreement is a legally binding contract that commits the buyer and seller to specific terms and provisions as part of the sale of goods or services. While forms of this type of contract are found in many different areas of the business world, an agreement of this type is commonly used in the world of real estate. One of the primary functions of the sales and purchase agreement is to define the exact rights and responsibilities that the buyer and the seller are assuming as part of the purchase process. The comprehensive nature of the agreement helps to minimize the opportunity for any type of misunderstanding of what is and is not necessary to successfully complete the transaction.

Depending on the type of goods and services offered, a sales and purchase agreement may be a relatively short document, or compose several pages of text. For simpler transactions that involve a one-time sale of a fixed number of units of a specific good, the terms and provisions of the contract may be relatively few, although the detail in the contract will be exacting. In situations where the sales and purchase contract is used to establish an ongoing business relationship between a supplier and a buyer, the provisions will be much more extensive, covering every aspect of what the buyer can expect from the seller, and vice versa. Regardless of the length of the agreement, the text will also address the specific covenants and commitments that each party is responsible for fulfilling as part of the transaction.

For example, a sales and purchase agreement that is used to structure an ongoing delivery of goods or services to a buyer will often include such key details as a schedule for shipments, including specific dates of delivery. Along with the standard pricing, the contract may also include a schedule for tiered pricing, allowing the buyer to receive additional discounts off the price per unit if and when the total purchase exceeds a certain amount within a defined period of time. The agreement will also include the steps used to apply that discount to the purchases, as well as what the buyer must do in order to delay a recurring shipment, or make a permanent change to the frequency of the scheduled deliveries.

While it is true that the sales and purchase agreement can be a highly detailed document that takes some time to prepare, both parties benefit from establishing this type of agreement. Unlike less formal and comprehensive contracts, the emphasis is on expressed rights, privileges, and responsibilities, and not on implied rights, privileges, and responsibilities. As a result, there is very little room for personal interpretation of what a given provision actually means, since the verbiage used in the contract is precise and straightforward. This is especially important when the agreement is establishing an ongoing relationship between the two parties, since it paves the way for a more harmonious and productive process between the two entities.