A Practical Guide to Commerical Real Estate Transactions: From Contrast to Closing

by Stein, Gregory M.

• ISBN13: 9781570739309
• ISBN10: 1570739307
• Format: Paperback
• Copyright: 2001-06-01
• Publisher: Natl Book Network

Summary

This is a practical introduction to transactional real estate law. Walking lawyers through the steps in the order in which they are likely to arise, the book focuses on the documents to be drafted and revised, the due diligence to be undertaken.

Table of Contents

Preface and Acknowledgments	xvii
Part I: Introduction	1	(6)
Introduction	3	(4)
Bridging the Gap between Law School and Real Estate Practice	3	(1)
Format of the Book	4	(1)
The Mechanics of a Transaction: Drafting, Negotiation, and Revision	4	(1)
Gathering Information and Allocating Risk	5	(2)
Part II: Conveyancing Transactions	7	(170)
The Contract of Sale	9	(110)
The Need for a Contract	9	(1)
Buyer's Perspective	10	(1)
Seller's Perspective	11	(1)
Statute of Frauds	12	(1)
Caution: Letter of Intent	12	(1)
Form: Letter of Intent	12	(1)
Parties	12	(2)
Caution: Entities Still to Be Formed	13	(1)
Form: Identification of Parties Clause	13	(1)
Recitals	14	(1)
Definitions	14	(1)
Identity of Property	15	(1)
Agreement to Buy and Sell the Property	16	(1)
Purchase Price	17	(4)
Form: Payment of Purchase Price Clause	17	(1)
Purchases Subject to Existing Financing	18	(1)
Portion to Be Paid by Assumption of Existing Debt	18	(1)
Caution: Assumptions and Purchases ``Subject To''	19	(1)
Portion to Be Paid by Amount Borrowed from a Third-Party Lender	19	(1)
Portion to Be Paid by Seller Financing	19	(1)
Caution: Seller Financing	20	(1)
Form: Portion of Purchase Price to Be Paid by Seller Financing Clause	20	(1)
Down Payment	21	(2)
Caution: Interest on Down Payment	22	(1)
Caution: Brokerage Commissions	23	(1)
Form: Down Payment Clause with Liquidated Damages Provision	23	(1)
Escrow for Down Payment	23	(2)
Caution: Lawyers Serving as Escrow Agents	23	(1)
Form: Escrow Provision for Down Payment	24	(1)
Sale or Removal of Personal Property	25	(1)
Caution: Liquor Licenses	26	(1)
Caution: Sales Tax	26	(1)
Seller's Representations, Warranties, Covenants, and Indemnities	26	(26)
Caution: Continuing Representations	29	(1)
Caution: ``As Is'' Representations	30	(1)
Form: Representations and Warranties of Seller, with Indemnity	30	(1)
Due Organization of Seller	30	(1)
Caution: Seller's Good Standing	31	(1)
Authority of Seller; No Approvals Required; No Violations of Other Agreements	31	(1)
Entire Premises	32	(1)
Form: Entire Premises Clause	33	(1)
No Options	33	(1)
Caution: Inquiring about Options	34	(1)
Condition of Property and Improvements	34	(1)
Caution: Condition of Property and Caveat Emptor	35	(1)
Maintenance and Operation of Property until Closing	35	(1)
Seller's Title and Permitted Encumbrances	36	(1)
Form: Title Provision	37	(1)
Schedule of Tenant Leases; Status of Tenant Leases	37	(1)
Caution: Accuracy of Tenant Lease Schedules	38	(1)
No Brokerage Commissions on Leases	38	(1)
Access to Property	39	(1)
Caution: Access across Easements	40	(1)
Status of Utilities	40	(1)
Status of Permits; Certificate of Occupancy	41	(1)
Compliance with Law	42	(1)
Zoning	42	(1)
Litigation	43	(1)
Form: Litigation Clause	44	(1)
Environmental Matters	44	(1)
Employment Matters; Service Contracts	45	(1)
Covenants, Servitudes, Easements, and Reciprocal Easements	46	(1)
Licenses and Franchises	47	(1)
Caution: Franchisor's Approval	47	(1)
Trademarks; Copyrights; Visual Artists' Rights	48	(1)
Status of Insurance	48	(1)
Casualty	49	(1)
Condemnation	50	(1)
Real Property Taxes and Assessments	50	(1)
No Prior Mortgages	51	(1)
No Other Liens	52	(1)
Buyer's Representations, Warranties, and Covenants	52	(3)
Form: Representations, and Warranties of Buyer	53	(1)
Due Organization of Buyer	54	(1)
Caution: Forming Buyer Entity before Executing Contract	55	(1)
Authority of Buyer; No Approvals Required; No Violations of Other Agreements	55	(1)
Survival of Representations, Warranties, Covenants, and Indemnities; Relationship to Due Diligence	55	(2)
Caution: Survival Clause	57	(1)
Technique: Survival Clause	57	(1)
Conditions Precedent to Buyer's Obligation to Close	57	(26)
Form: Conditions Precedent to Buyer's Obligation to Close	59	(1)
Form: Review Period Clause	60	(1)
Continuing Accuracy of Seller's Representations and Warranties; Performance of Covenants	61	(3)
Caution: Continuing Accuracy of Seller's Representations and Warranties	64	(1)
Access to Property during Due Diligence Period	64	(1)
Financing	64	(3)
Caution: Financing Condition	67	(1)
Form: Financing Condition	67	(1)
Authority of Seller	68	(1)
Condition of Property and Improvements	68	(2)
Delivery of Deed	70	(1)
Caution: Types of Deed Warranties	70	(1)
Title Policy	70	(2)
Affidavit to Title Company	72	(1)
Caution: The Title Policy, the Title Affidavit, and Mechanics' Liens	73	(1)
Technique: Forcing Seller to Provide the Title Affidavit	74	(1)
Survey	74	(1)
Caution: Inconsistent Legal Descriptions	74	(1)
Appraisal	74	(1)
Assignment of Seller's Interest in Leases	75	(1)
Tenant Estoppels	75	(1)
Technique: Tenant Estoppels and Landlord Affidavits	76	(1)
Form: Tenant Estoppel Certificate	76	(2)
Notices to Tenants	78	(1)
Delivery of Security Deposits	78	(1)
Opinion of Seller's Counsel	79	(2)
Caution: Risks to Seller's Counsel in Preparing Opinions	81	(1)
Assignment of Seller's Interest in All Other Property and Agreements	81	(1)
FIRPTA Affidavit	82	(1)
Form: FIRPTA Affidavit	82	(1)
Permits, Certificates, Plans, Warranties, and Keys	83	(1)
Conditions Precedent to Seller's Obligation to Close	83	(4)
Form: Conditions Precedent to Seller's Obligation to Close	84	(1)
Payment of Purchase Price	84	(1)
Caution: Confirmation That Wired Funds Have Been Received	85	(1)
Continuing Accuracy of Buyer's Representations and Warranties; Performance of Covenants	85	(1)
Authority of Buyer	86	(1)
Opinion of Buyer's Counsel	86	(1)
Waiver of Closing Conditions	87	(1)
Technique: Waiver of Closing Conditions and Drafting the Conditions Section	88	(1)
Casualty or Condemnation before Closing	88	(3)
Form: Casualty Provision	89	(1)
Form: Condemnation Provision	90	(1)
Closing Date, Time, Location, and Mechanics	91	(1)
Caution: Outside Closing Date	92	(1)
Form: Closing Provision	92	(1)
Defaults and Remedies	92	(3)
Form: Remedies Provision	94	(1)
Nonrecourse	95	(1)
Transfer Taxes, Gains Taxes, Sales Taxes	95	(1)
Apportionments and Adjustments	96	(3)
Form: Apportionment Provision	98	(1)
Brokerage Commissions	99	(1)
Caution: Brokerage Indemnities	100	(1)
Form: Reciprocal Representations and Indemnities Regarding Brokerage Commissions	100	(1)
Recording of Contract	100	(1)
Caution: Releasing Recorded Contracts	101	(1)
Payment of Expenses	101	(1)
Time Is of the Essence	102	(1)
Caution: Time Is of the Essence	103	(1)
Assignment of Contract	103	(1)
Caution: Assignability by Buyer	104	(1)
Caution: Signing on Behalf of Entities to Be Formed	104	(1)
Miscellaneous Contract Sections	104	(5)
Further Assurances	105	(1)
Merger and Waiver	105	(1)
Form: Merger Provision (Integration Function Only)	106	(1)
Choice of Law; Choice of Forum	106	(1)
Form: Choice of Law Provision	107	(1)
Notices	107	(1)
Form: Notice Provision	107	(1)
Other Miscellaneous Provisions	108	(1)
Form: Severability Provision	109	(1)
Form: Section Headings Provision	109	(1)
Form: Waiver of Jury Trial Clause	109	(1)
Counterparts and Multiple Originals	109	(1)
Form: Counterpart Provision	110	(1)
Signature Lines; Date	110	(1)
Legal Description and Other Exhibits	111	(8)
Post-Contractual Due Diligence	119	(58)
What Is Due Diligence? Gathering Information, Reviewing Information, and Addressing Problems	119	(1)
Due Diligence and the Contract of Sale	120	(1)
Contract Remedies for Problems Unearthed during Due Diligence	120	(3)
Checklist: Due Diligence Issues	122	(1)
Technique: Allocating Responsibility for Due Diligence Matters	123	(1)
Title and Survey Matters	123	(29)
The Title Commitment	124	(3)
The Form Title Policy	127	(2)
Real Property Taxes and Assessments	129	(2)
Caution: Real Estate, Taxes, Local Law, and Non-Local Lawyers	131	(1)
Covenants, Servitudes, Easements, and Reciprocal Easements	132	(1)
Caution: Reviewing Covenants, Servitudes, Easements, and Reciprocal Easements	133	(1)
Existing Mortgages	134	(1)
Caution: Existing Mortgages and Prepayment Fees	135	(1)
Tenant Leases and Parties in Possession	135	(1)
Mechanics' Liens	136	(2)
Violations	138	(1)
Caution: Discovering Violations	139	(1)
Judgments and Lis Pendens	139	(1)
State and Federal Tax Liens	140	(1)
Air Rights and Development Rights; Mineral Rights	141	(1)
Permitted Encumbrances	142	(1)
Title Endorsements	143	(1)
Checklist: Title Endorsements	143	(1)
Zoning	144	(1)
Coinsurance and Reinsurance	145	(2)
Survey	147	(2)
Form: Survey Requirements and Surveyor's Certificate	149	(2)
Access to the Property	151	(1)
Utilities	151	(1)
Torrens Registration	152	(1)
Lease Review and Estoppels	152	(17)
Obtaining Tenant Leases	153	(1)
Reviewing Tenant Leases	154	(1)
Form: Lease Review Summary	155	(1)
Permitted Uses; Radius Restrictions; Covenants of Continuous Operations	155	(1)
Duration of Leases	156	(1)
Caution: Determining Lease Commencement Dates	157	(1)
Renewal Options	157	(1)
Expansion Options	158	(1)
Caution: Expansion Options	158	(1)
Termination Options	158	(1)
Purchase Options and Rights of First Refusal	159	(1)
Assignment and Subletting Rights	160	(2)
Security Deposits	162	(1)
Guarantees	162	(1)
Landlord's Construction Obligations; Improvements by Tenants	163	(1)
Leasehold Financing	164	(1)
Caution: Leasehold Financing	164	(1)
Tenant Estoppels	165	(1)
Form: Tenant Estoppel Certificate	166	(1)
Subordination, Nondisturbance, and Attornment Agreements	166	(3)
Form: Subordination, Nondisturbance, and Attornment Agreement	169	(1)
Physical Condition of Property and Improvements	169	(3)
Suitability for Intended Use	169	(1)
Caution: Responsibility for Ordering Inspections	170	(1)
Suitability for Construction	170	(1)
Availability of Necessary Permits	170	(1)
Environmental Matters	171	(1)
Caution: Environmental Matters	171	(1)
Assignability of Contracts and Licenses to Buyer	171	(1)
Corporate, Partnership, and Limited Liability Entity Matters	172	(3)
Due Organization of Parties	172	(1)
Authority of Parties	173	(1)
Opinions of Counsel	174	(1)
Financing Matters	175	(2)
Part III: Loan Transactions	177	(76)
The Loan Commitment	179	(20)
The Need for a Loan Commitment	179	(2)
Similarities to and Differences from the Contract of Sale	181	(1)
Lender's Perspective	182	(1)
Borrower's Perspective	183	(1)
Terms of the Loan Commitment	184	(15)
Caution: Loan Commitment Issues and Loan Document Issues	185	(1)
Form: Loan Commitment	186	(1)
Tenant Leases; Lease Priorities	186	(1)
Environmental Matters	187	(1)
Insurance Matters	188	(2)
Assignability of Contracts and Licenses	190	(1)
Real Property Taxes and Assessments	191	(1)
Prior Mortgages	192	(1)
Appraisal	192	(1)
Creditworthiness Matters	193	(1)
Loan Guarantees and Other Forms of Credit Enhancement	194	(1)
Opinion of Borrower's Counsel	194	(1)
Nonrecourse Provision	195	(1)
Loan Commitment Fee	196	(1)
Loan Expenses	196	(3)
Post-Loan Commitment Due Diligence	199	(16)
Due Diligence and the Loan Commitment	199	(2)
Loan Commitment Remedies for Problems Unearthed during Due Diligence	201	(1)
Title and Survey Matters	201	(4)
The Title Commitment to Lender and the Form Title Policy	203	(1)
Caution: Distinguishing between Owner's and Lender's Title Insurance	204	(1)
Mechanics' Liens	204	(1)
Lease Review	205	(5)
Renewal, Expansion, and Termination Options	206	(1)
Purchase Options and Rights of First Refusal	207	(1)
Landlord's Construction Obligations	207	(1)
Tenant Estoppels	208	(1)
Subordination, Nondisturbance, and Attornment Agreements	209	(1)
Creditworthiness Matters	210	(1)
Environmental Matters	211	(1)
Insurance Matters	211	(1)
Contracts and Licenses	212	(1)
Prior Mortgages	212	(1)
Caution: Prior Mortgages	213	(1)
Appraisal	213	(2)
Loan Documents	215	(38)
Document Preparation	215	(1)
Note	216	(2)
Form: Simple Secured Note	218	(1)
Mortgage	218	(21)
Similarities to and Differences from the Loan Commitment	219	(1)
Granting Clause	219	(1)
Form: Granting Clause (with Power of Sale)	220	(1)
Due-on-Transfer	221	(1)
Form: Due-on-Transfer Clause	222	(1)
Prepayment	222	(2)
Limitations on Junior Financing	224	(2)
Cross-Default	226	(1)
Maintaining the Property	227	(1)
Events of Default	228	(1)
Caution: Lender Advances to Cure Defaults	229	(1)
Preforeclosure Remedies	229	(1)
Foreclosure	230	(2)
Nonrecourse Provision	232	(2)
Form: Nonrecourse Provision	234	(1)
Releases and Partial Releases	235	(1)
Escrows for Payment of Taxes and Insurance	236	(1)
Usury	237	(1)
Form: Usury Savings Provision	237	(1)
Bankruptcy	238	(1)
Caution: Bankruptcy Stays	239	(1)
Deed of Trust	239	(1)
Assignment of Leases and Rents	240	(2)
Form: Collateral Assignment of Leases and Rents	242	(1)
Security Agreements and Financing Statements; Fixture Filings	242	(1)
Form: Security Agreement	243	(1)
Guarantees	243	(1)
Form: Loan Guarantee	244	(1)
Participation Agreement	244	(1)
Caution: Loan Participations	245	(1)
Seller Financing	245	(1)
Assumption of Existing Financing	246	(2)
Acquisition Subject to Existing Financing	248	(1)
Subordinate Lending	249	(4)
Part IV: The Mechanics of a Closing	253	(40)
Preparing for a Closing	255	(24)
The Need for a Closing	255	(1)
The Closing Checklist	256	(1)
Checklist: Closing Checklist	257	(1)
Document Preparation	257	(7)
Caution: Reliance on Form Documents	258	(1)
Deed	258	(2)
Corporate, Partnership, and Limited Liability Entity Documents; Power of Attorney	260	(2)
Form: Certificate of Secretary, with Attached Resolutions	262	(1)
Bill of Sale	262	(1)
Caution: Sales Taxes on Personal Property	263	(1)
Form: Bill of Sale	263	(1)
Title Insurance	264	(2)
Payoff Letters and Satisfactions of Existing Mortgages	266	(2)
Opinions of Counsel	268	(1)
Method of Payment	268	(2)
Insurance Coverage	270	(1)
Employment Agreements, Service Contracts, and Other Agreements	270	(1)
Permits, Certificates, Plans, Warranties, and Keys	271	(1)
Utility Readings	271	(1)
Calculating Closing Apportionments and Adjustments	272	(1)
Calculating Fees, Commissions, Taxes, and Other Closing Costs	273	(2)
Notices	275	(1)
The Walk-Through	275	(1)
Form: Post-Closing Agreement	276	(1)
The Closing Statement	276	(3)
Running a Closing	279	(10)
Structure of a Typical Closing	279	(2)
The ``Table'' or ``New York--Style'' Closing	279	(1)
The Escrow Closing	280	(1)
Following the Closing Checklist	281	(1)
Form: Closing Instruction Letter from Buyer	282	(1)
Title Insurance	282	(2)
Execution and Acknowledgment of Documents	284	(1)
Multiple Copies	285	(1)
Delivery and Distribution of Funds	286	(3)
Caution: Confirming That Funds Have Been Wired	287	(2)
Post-Closing Matters	289	(4)
Recordation of Documents	289	(1)
Distribution of Documents	290	(1)
Following Up	291	(1)
Organizing the File	291	(2)
Appendices	293	(86)
Appendix A: Form of Letter of Intent	295	(3)
Appendix B: Form of Representations and Warranties of Seller, with Indemnity	298	(3)
Appendix C: Lease Review Summary Form	301	(8)
Appendix D: Form of Subordination, Nondisturbance, and Attornment Agreement	309	(7)
Appendix E: Form of Loan Commitment	316	(14)
Appendix F: Form of Simple Secured Note	330	(5)
Appendix G: Form of Collateral Assignment of Leases and Rents	335	(7)
Appendix H: Form of Security Agreement	342	(9)
Appendix I: Form of Loan Guarantee	351	(7)
Appendix J: Form of Closing Checklist	358	(6)
Appendix K: Form of Certificate of Secretary, with Attached Resolutions	364	(4)
Appendix L: Form of Post-Closing Agreement	368	(7)
Appendix M: Form of Closing Instruction Letter from Buyer	375	(4)
About the Authors	379	(2)
Index	381