- Official section
- National V: Contracts
- Broker weight
- 19% of the national broker portion
- Expected scored items
- Purchase and lease contracts are part of about 19 of 100 items
Contracts topic guide
Purchase and lease contracts
A purchase contract organizes a future transfer. A lease transfers possession for a term. Exam questions test which document, clause, deadline, or expense allocation controls a specific fact.
What does this exam area cover?
Short answer: Master purchase agreement anatomy, earnest money, financing, inspection, appraisal, title and sale contingencies, closing and possession, fixtures and personal property, risk allocation, leasehold estates, landlord and tenant duties, assignment and sublease, and gross, net, percentage, variable, ground, proprietary, and lease-purchase arrangements.
The current national outline expressly includes purchase agreements, contingencies, leases and rental agreements, lease-purchase agreements, and types of leases. The tested answer normally comes from the written terms plus basic contract principles, not from an assumption about what parties usually do.
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What is on the official outline?
- Topic
- Purchase agreement anatomy
- What to know
- Competent parties, identified property, price, financing, deposit, included and excluded property, title, survey, prorations, closing, possession, default, remedies, notices, signatures, and dates
- Best exam move
- Locate the clause governing the disputed fact before choosing a remedy.
- Topic
- Earnest money and escrow
- What to know
- Good-faith deposit, delivery deadline, approved depository, trust account, application at closing, refund conditions, forfeiture language, disputes, and written release
- Best exam move
- A deposit supports seriousness but does not replace mutual consideration or let a broker decide a dispute.
- Topic
- Financing contingency
- What to know
- Loan type, amount, loan-to-value ratio, interest limit, application deadline, good-faith effort, lender decision, notice, extension, waiver, and termination
- Best exam move
- Distinguish inability to obtain stated financing from a buyer who simply stops applying.
- Topic
- Inspection and due diligence
- What to know
- Inspection right, access, objection period, repair request, seller response, buyer election, professional reports, property condition, and termination deadline
- Best exam move
- Inspection creates information and contract choices, not an automatic demand that every defect be repaired.
- Topic
- Appraisal contingency
- What to know
- Minimum appraised value, lender appraisal, notice, renegotiation, additional cash, challenge, waiver, and termination
- Best exam move
- A low appraisal does not automatically cancel a contract; apply the contingency procedure.
- Topic
- Title, survey, and closing
- What to know
- Evidence of title, permitted exceptions, objection and cure, survey matters, closing documents, prorations, transfer taxes, possession, risk of loss, and final walk-through
- Best exam move
- Separate title quality, physical condition, and possession because different clauses govern them.
- Topic
- Sale-of-property and other contingencies
- What to know
- Buyer home sale, attorney review, condominium documents, insurance, zoning, environmental review, deadlines, kick-out provisions, satisfaction, waiver, and notice
- Best exam move
- Ask whose benefit the clause protects and whether that party timely satisfied, waived, or invoked it.
- Topic
- Lease essentials
- What to know
- Landlord and tenant, premises, rent, term, possession, security deposit, permitted use, utilities, maintenance, repairs, insurance, entry, renewal, default, and surrender
- Best exam move
- A lease is both a contract and a transfer of a possessory interest.
- Topic
- Leasehold estates
- What to know
- Estate for years, periodic estate, estate at will, estate at sufferance, fixed termination, automatic renewal, notice, holdover, and possession after termination
- Best exam move
- Classify the tenancy by how it begins, renews, and ends.
- Topic
- Transfers and lease mechanics
- What to know
- Assignment, sublease, landlord consent, privity, original tenant liability, subtenant, renewal option, use clause, alterations, casualty, condemnation, and surrender
- Best exam move
- Assignment transfers the remaining leasehold; sublease leaves a reversion with the original tenant.
- Topic
- Expense-based lease types
- What to know
- Gross, modified gross, single net, double net, triple net, percentage, variable, index, graduated, ground, proprietary, and sale-leaseback
- Best exam move
- Identify who pays taxes, insurance, maintenance, utilities, and sales-based rent.
- Topic
- Lease-purchase and option arrangements
- What to know
- Current tenancy, future purchase duty or right, purchase price or formula, option period, consideration, rent credit, maintenance, financing, default, disclosure, and closing
- Best exam move
- Determine whether the tenant must buy, may buy, or has only a right of first refusal.
Which distinctions produce the most mistakes?
- Terms
- Earnest money vs. consideration
- Difference
- Earnest money is a deposit under the agreement. Consideration is the bargained-for legal value supporting the contract and can consist of mutual promises.
- Question cue
- Deposit handling versus contract formation.
- Terms
- Contingency vs. covenant
- Difference
- A contingency conditions a duty or right on an event. A covenant is a promise to act or refrain from acting.
- Question cue
- If event occurs versus party promises.
- Terms
- Appraisal vs. inspection
- Difference
- An appraisal develops an opinion of value, often for a lender. An inspection evaluates physical systems and conditions.
- Question cue
- Value conclusion versus condition findings.
- Terms
- Lease vs. license
- Difference
- A lease transfers a possessory interest for a term. A license is revocable permission to use property without an estate.
- Question cue
- Right of possession versus permission.
- Terms
- Estate for years vs. periodic estate
- Difference
- An estate for years has a definite beginning and ending. A periodic estate renews for successive periods until proper notice ends it.
- Question cue
- Fixed expiration versus repeating term.
- Terms
- Assignment vs. sublease
- Difference
- An assignment transfers the tenant's entire remaining interest. A sublease transfers less and leaves a reversion with the original tenant.
- Question cue
- All remaining time versus retained time.
- Terms
- Gross vs. net lease
- Difference
- A gross lease places most operating expenses on the landlord. A net lease shifts specified expenses to the tenant in addition to base rent.
- Question cue
- Who pays property operating costs.
- Terms
- Percentage vs. index lease
- Difference
- Percentage rent responds to tenant sales. Index rent changes using an agreed external measure such as the Consumer Price Index.
- Question cue
- Business revenue versus published index.
- Terms
- Lease-purchase vs. lease-option
- Difference
- Lease-purchase can impose a future purchase obligation. Lease-option generally gives the tenant a choice to buy.
- Question cue
- Must purchase versus may purchase.
How should you read a purchase or lease scenario?
- Name the document and relationship: purchase contract, lease, option, lease-purchase, assignment, or sublease.
- Identify the property, parties, term, price or rent, deposit, and the exact promise or condition at issue.
- Build the deadline chain for application, inspection, objection, cure, notice, waiver, closing, renewal, or termination.
- Ask which party bears the expense, risk, maintenance duty, or decision under the written clause.
- Separate current possession from future title and distinguish a right from an obligation.
- Apply notice, performance, default, cure, and remedy language without inventing an unwritten custom.
- Keep the licensee inside authorized form use, communication, recordkeeping, and referral boundaries.
- Lease type
- Gross
- Tenant commonly pays
- Rent; landlord pays most operating expenses
- Exam signal
- Full-service rent
- Lease type
- Net
- Tenant commonly pays
- Rent plus stated property expenses
- Exam signal
- Taxes, insurance, maintenance
- Lease type
- Percentage
- Tenant commonly pays
- Base rent plus sales percentage
- Exam signal
- Retail gross sales
- Lease type
- Index
- Tenant commonly pays
- Rent adjusted by stated index
- Exam signal
- CPI or another benchmark
- Lease type
- Ground
- Tenant commonly pays
- Rent for land, often long term
- Exam signal
- Tenant may build improvements
- Lease type
- Proprietary
- Tenant commonly pays
- Rent under cooperative ownership structure
- Exam signal
- Shareholder-tenant
How do the rules work in scenarios?
Financing deadline missed
Scenario: A purchase contract requires the buyer to apply for a specified loan within five business days. The buyer waits three weeks, then claims the financing contingency after the lender declines a rushed application.
- The contingency required a timely application and good-faith effort.
- The buyer did not complete the required step within the stated period.
- A protected event does not excuse failure to follow the condition's procedure.
Answer: The buyer may have lost the contingency protection. The contract language and facts control, so the broker should document and refer disputed legal conclusions.
Low appraisal
Scenario: A property under contract for $360,000 appraises at $348,000. The agreement allows the buyer to terminate only after timely notice and an unsuccessful price-resolution period.
- The appraisal triggered a contractual process, not instant cancellation.
- The buyer must give the required notice.
- The resolution period must run before the stated termination right can be used.
Answer: Follow the appraisal clause's notice and resolution steps before concluding that the agreement ends.
Assignment or sublease
Scenario: A tenant transfers the entire remaining two years of a lease to another business and retains no right to return before expiration.
- The tenant transferred the whole remaining leasehold.
- No reversionary period was retained.
- Landlord consent and continuing liability still depend on the lease and law.
Answer: The transfer is an assignment, not a sublease.
Triple net identification
Scenario: A retail tenant pays base rent plus its allocated real estate taxes, property insurance, and common maintenance costs.
- The tenant pays the three expense categories commonly associated with net leasing.
- Base rent remains separate.
- The actual lease, not the nickname, defines the precise obligations.
Answer: This is commonly described as a triple net lease.
What are the common exam traps?
- Trap
- A contract without earnest money is automatically invalid.
- Correction
- Mutual promises may supply consideration even when no deposit is paid.
- Trap
- A contingency works whenever a party mentions it.
- Correction
- The protected party must comply with deadlines, notice, effort, and waiver rules.
- Trap
- A low appraisal automatically ends the sale.
- Correction
- The appraisal clause controls negotiation, waiver, cash contribution, or termination rights.
- Trap
- An inspection requires the seller to repair every reported item.
- Correction
- The report informs choices granted by the contract; it does not rewrite the bargain.
- Trap
- A lease transfers ownership of the property.
- Correction
- A lease transfers possession or use for a term, not fee title.
- Trap
- Every month-to-month tenancy ends automatically after one month.
- Correction
- A periodic tenancy renews until proper notice terminates it.
- Trap
- Assignment always releases the original tenant.
- Correction
- A transfer does not create a release or novation unless the landlord agrees or law provides it.
- Trap
- Triple net has identical wording in every lease.
- Correction
- The label is shorthand; the signed document determines every expense allocation.
- Trap
- Lease-purchase and lease-option always mean the same thing.
- Correction
- One may impose a purchase duty while the other ordinarily gives a purchase right.
- Trap
- A licensee may solve ambiguity by drafting a custom legal clause.
- Correction
- Use authorized forms within competence and refer legal drafting or interpretation to counsel.
Can you answer these original practice questions?
These questions are original study items aligned to the published outline. They are not copied, recalled, or predicted PSI questions.
1. Which statement about earnest money is most accurate?
- It is always required for a valid purchase contract
- It is a deposit governed by the agreement and escrow instructions
- It automatically belongs to the seller after any buyer default
- It replaces the parties' signatures
Show answer and explanation
Answer: B
Earnest money is handled according to the contract, escrow authority, and law; it is not a universal formation requirement.
2. A tenant transfers all 18 months remaining on a lease. What is the transfer?
- Sublease
- Assignment
- License
- Novation automatically
Show answer and explanation
Answer: B
Transferring the entire remaining leasehold is an assignment. A sublease leaves a reversion with the original tenant.
3. Which lease commonly uses base rent plus a share of retail sales?
- Gross lease
- Ground lease
- Percentage lease
- Proprietary lease
Show answer and explanation
Answer: C
Percentage leases connect some rent to the tenant's gross sales, often above an agreed breakpoint.
4. What best distinguishes a lease-option from a lease-purchase obligation?
- The option gives a purchase right rather than a purchase duty
- The option transfers title immediately
- The option eliminates rent
- The option requires no definite terms
Show answer and explanation
Answer: A
An optionee may exercise the purchase right but generally is not obligated to do so before exercise.
5. A buyer receives an inspection report during a valid inspection period. What should happen next?
- The seller must repair every item
- The broker decides which defects matter
- The parties follow the contract's objection, response, and election process
- The contract ends without notice
Show answer and explanation
Answer: C
An inspection contingency creates contract-specific rights with procedures and deadlines.
How should you study this area?
- Session
- 1. Purchase agreement map
- Focus
- Parties, property, price, financing, deposits, personal property, title, closing, possession, default, and signatures
- Proof you are ready
- Label every clause in a sample agreement without using notes.
- Session
- 2. Contingencies
- Focus
- Financing, inspection, appraisal, title, attorney review, home sale, insurance, notice, waiver, and termination
- Proof you are ready
- Build deadline chains for eight original scenarios.
- Session
- 3. Lease foundations
- Focus
- Premises, rent, term, possession, deposits, use, repairs, entry, renewal, default, and surrender
- Proof you are ready
- Explain ten landlord and tenant duties from a lease summary.
- Session
- 4. Leasehold and transfer
- Focus
- Estate for years, periodic estate, at will, at sufferance, assignment, sublease, and novation
- Proof you are ready
- Classify twelve tenancy and transfer facts.
- Session
- 5. Lease types
- Focus
- Gross, modified gross, net, percentage, index, graduated, ground, proprietary, and sale-leaseback
- Proof you are ready
- Identify the payer and rent formula in ten examples.
- Session
- 6. Integrated decisions
- Focus
- Lease-option, lease-purchase, contract deadlines, remedies, licensee role, and mixed fact patterns
- Proof you are ready
- Score at least 90% and explain every missed answer aloud.
Do not count recognition as mastery. Close the notes and explain the rule, apply it to a new fact pattern, and identify why each distractor fails.
Purchase and Lease Contracts FAQ
What must a real estate purchase agreement identify?
A sound agreement identifies the parties and property, states the price and financing terms, describes deposits, sets deadlines and closing terms, allocates risk and expenses, addresses included property, states contingencies and default remedies, and is signed by the parties to be charged.
Is earnest money required to create a purchase contract?
Not necessarily. Consideration is required, but the parties' mutual promises can supply it. Earnest money is a good-faith deposit governed by the agreement and escrow terms, not a universal element of contract formation.
What does a contract contingency do?
A contingency makes a duty or right depend on a specified event, such as financing, inspection, appraisal, attorney review, title approval, or the sale of another property. Its deadline, notice method, satisfaction standard, waiver rule, and remedy control the result.
What is the difference between a lease and a license?
A lease generally transfers a right of possession for a term in exchange for rent. A license grants permission to use property without transferring an estate or exclusive possessory interest.
What is a gross lease?
In a gross lease, the tenant pays stated rent and the landlord pays most operating expenses, subject to the actual lease. A modified gross lease reallocates one or more expense categories.
What is a net lease?
A net lease requires the tenant to pay base rent plus some property expenses. Single, double, and triple net commonly refer to increasing responsibility for taxes, insurance, and maintenance, but the document controls every allocation.
What is a percentage lease?
A percentage lease usually requires base rent plus a percentage of the tenant's gross sales above a negotiated breakpoint. It is common in retail property.
How is a lease-purchase agreement different from an option?
A lease-purchase agreement can obligate the parties to a future sale while the lease governs present possession. A lease with an option gives the tenant a right, but generally not a duty, to purchase during the option period.
May a licensee draft any custom purchase or lease clause?
A licensee should use authorized forms, fill factual blanks within training and authority, avoid giving legal advice, and refer custom legal drafting or disputed interpretation to an attorney. The exam rewards recognizing this professional boundary.
Are these questions copied from PSI?
No. Every practice item is original and aligned to the public contracts outline.
Primary sources
- PSI Illinois Candidate Information Booklet dated June 24, 2026
- Cornell Legal Information Institute, earnest money
- Cornell Legal Information Institute, contingency clause
- Cornell Legal Information Institute, lease
- Cornell Legal Information Institute, covenant
- U.S. Department of Housing and Urban Development, Fair Housing Act overview
The current official outline controls the tested scope. Statutes, regulations, and official agency materials control when a general study rule and a jurisdiction-specific rule differ.