Before our clients sign contracts for the purchase or sale of commercial real estate, we confirm with local counsel what the real estate tax adjustment or proration will consist of. Many parties will stick to a general boilerplate provision in a contract providing that real estate taxes will be adjusted as of the closing date. However, the standard boilerplate provision may not work well in certain jurisdictions depending on when taxes are assessed and what the local custom is. For example, we recently worked on a sales contract in the Midwest where it is customary for only taxes that become delinquent in the year of closing to be adjusted. Additionally, in some cases there may be special assessments or other unique local features of the real estate tax law you want to address specifically in the contract. If the parties desire, it may be helpful to include a “for example” …
Picture it — your client is in a rush to complete diligence on a potential acquisition and hates to pay for the cost of an ALTA survey in the event they decide not to move forward. I know many acquisition lawyers have experienced this at least once (particularly on mid-market deals). Some may assume that what appear to be standard utility easements are innocuous. However, utility easements must be reviewed carefully to assess risk. It is always best to review utility easements with a current ALTA survey in hand. Here are a few things your lawyer may look for:
1. Improvement Restriction: One of the most common provisions an attorney will review is whether the easement prohibits improvements from being located within a designated area. Although it may be rare to hear of a utility company suing to force removal of all or part of any improvements located in a …
In this installment of our Transaction Tip series, we offer a reminder about owner’s title insurance policies. When you (or your client) plans to transfer real estate to a wholly owned subsidiary, remember to read your ALTA title insurance jacket to confirm coverage will continue. Section 1(d) of the 2016 ALTA Title Insurance Jacket defines “Insured” to include “a grantee of an Insured under a deed delivered without payment of actual valuable consideration conveying the Title:
(1) if the stock, shares, memberships, or other equity interests
of the grantee are wholly-owned by the named Insured,
(2) if the grantee wholly owns the named Insured,
(3) if the grantee is wholly-owned by an affiliated Entity of the
named Insured, provided the affiliated Entity and the
named Insured are both wholly-owned by the same person
or Entity, or
(4) if the grantee is a trustee or beneficiary of a trust created
In this installment of our Transaction Tip series, we share a list of some questions to consider when drafting and revising notice provisions in contracts.
Are the maximum number of delivery options included? Overnight courier (without naming a specific courier), hand delivery, certified mail, fax and/or email are commonly included. In all cases, it is always best to make sure hand delivery is an option for possible emergency situations.
Have all parties included an address where overnight courier and certified mail can actually be delivered? For example, Federal Express may not deliver to a P.O. Box address. Some institutions have extremely long addresses including a mailstop – which may create problems for overnight courier. To be sure, it is wise to run addresses through a hypothetical Federal Express label process before signing a contract.
Does the notice provision provide that notices are effective when received or delivered? If receipt or
The word “herein” is ubiquitous in contracts. When time permits, and your client allows, it is best practice to search for the term before executing a draft of any form of contract — loan documents, joint venture agreements etc. Often times, the word “herein” is contained in an enumerated section, paragraph or sub-section. Without using the term “this Agreement” or this “section” (as applicable) in lieu of “herein”, it may be unclear whether herein is referring only to the specific section or sub-section it appears in or the entire contract. As lawyers, we know that not every client permits time or cost flexibility for us to vet every ounce of boilerplate in a contract. However, it may be worth reminding clients that courts are not hesitant to interpret even simple terms in a contract. Recently, we read an article by Kelli Hinson of Carrington Coleman describing an instance where the …
We are pleased to announce that our Trending Report will include a series of “transaction tips” for drafting and reviewing commercial real estate and business contracts. Our first transaction tip in this series concerns representations and warranties in recorded documents. A variety of documents may be recorded in the land records where a property is located in connection with commercial real estate transactions. For example, a lender will record a mortgage or deed of trust (and sometimes a separate assignment of leases and rents) at the closing of a loan transaction. Often times, when a commercial loan is made, an unrecorded loan agreement contains a host of representations and warranties made by a borrower to the lender in connection with the subject loan. However, if a loan agreement is not required (or if the forms used in a transaction happen to do so) the representations and warranties may be contained …
The scope of restrictions that will cause a loan default or the borrower or guarantor to have partial or full recourse liability for a loan—otherwise known as non-recourse carve-outs—has evolved and expanded, according to JR Kasman founder Jennifer Kasman.
Since these transactions can have such high stakes, Jennifer gave us five tips for negotiating entity transfer restrictions in your loan documents.
Most acquisition lawyers are well-versed in the variety of “permitted exception” provisions that appear in seller friendly contracts. For the most part, the provisions are consistent and reasonable parties agree to “market” revisions when negotiating a purchase contract. On occasion, a seller will offer a contract providing that, in addition to items not objected to during the study period, “Permitted Exceptions” will include a list of enumerated items. Such a list of enumerated items may include:
In certain cases, loan documents include a one-time right of transfer or other provision allowing the purchaser of encumbered commercial real estate to assume the subject loan from a borrower that desires to sell the property. One-time right of transfer or permitted assumption provisions always include certain conditions that must be satisfied in order for the lender to consider, and possibly approve, the assumption request. For example, conditions may include (among other things) requirements that: (i) the proposed borrower be experienced in the ownership and management of properties similar to the subject property, (ii) certain loan to value requirements for the subject property are satisfied and (iii) the lender's standard underwriting requirements be satisfied. There are certain issues related to the loan assumption process that sellers and purchasers should be aware of before negotiating a purchase and sale contract that contemplates a loan assumption.
Recently, I dealt with an issue while acting as borrower’s counsel related to a waste carve-out in a non-recourse loan. Under the law of this particular state, “waste” was defined under state law to automatically include the failure to pay taxes and insurance. As you may know, “waste” is often a partial recourse carve-out under a non-recourse loan. A careful borrower’s lawyer will attempt to delete waste from a carve-out guaranty given the treatment of waste in certain recourse guaranty litigation (which is not always possible to accomplish given the market on this subject).
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