In the repurchase provision, a franchisee often implies that he has the first right to buy back the franchise if the franchisee decides to sell. Another example is a manufacturer selling bulk inventory to a distributor. The distributor ran into financial difficulties and decided to terminate the contract. When the manufacturer stipulates in the repurchase clause that the distributor must resell the items to the manufacturer, it eliminates the potential for liquidation or sale of items at reduced prices. In the end, undocumented sales/buybacks are considered riskier than a buyout contract. Sales/buybacks and pension transactions serve as a legal means of selling security, but act instead as a secured loan or a surety. The main difference between the two is that the repurchase agreement is always done in writing. However, a sale/buyout may or may not be documented. Sellers` buyouts are common in the early stages of a condo development. Documented pension transactions or buybacks recorded in a written contract are legally stronger and more flexible than those that are not documented. Due to the lack of documentation, the sale and repurchase are considered to be two separate contracts. If you buy real estate, there are two scenarios.
In the first scenario, the seller`s buyback protects the seller. Often, the seller owns other properties in the area – such as a real estate builder or real estate developer — and wants to get prices or avoid speculation until the owner sells all the units he has under development and construction. The seller will write the language in the sales contract or in an option agreement in an appendix allowing him to buy back the property if the buyer does not maintain the property or meets certain standards. Buyback systems are similar to secure return offers. Developers assure buyers that they will buy back the property at a 30-35% higher price within a specified time frame, usually 18-36 months after the project is completed. “After selling a real estate asset such as an apartment or office, the developer offers to buy it within a period of time at a guaranteed return. It`s a good way to raise capital in a slow market,” says Joy Sanyal, National Director, Strategic Development, JLL India, a real estate consultant. “Some developers combine buyback and secure return features. For example, a developer promises to buy back the property with a premium of 30-35% and also give an annual return of 12% per year for three years. The overall return is 60-66%,” says Rajan Ahuja, director of Realty Verticals, a real estate consulting firm.