Commercial Investment Real Estate November/December 2018 | Page 20

LEGAL
BRIEFS
The Fine Print
Look beyond big issues to get to a smooth closing.
by Stephanie Friese, JD
eal estate sales agreements are packed with fine print,
and often the lawyers are the only people reading it.
While lawyers are paid to lock down all the details of
legal agreements, buyers and sellers should always ask
questions. Never take anything for granted, and remember that the
purchase and sale agreement sets the rules for the rest of the game.
Don’t let your determination to get an agreement signed cause
you to look past big issues that could spell trouble on the backside
of a deal. Beware of these key sales agreement risks for sellers.
R
Set Realistic Timing
Time frames must align, such as the expiration of the due dili-
gence period, time to make title objections, and time to close.
For example, a contract may say the purchaser has 10 days to
make title objections or give the seller five days to respond to any
objections to the title. Every real estate deal is urgent, and apply-
ing pressure to get it done is part of the negotiating process. Be
realistic and don’t agree to time frames without assessing if they
align with your priorities and are consistent. Allow appropriate
time for due diligence.
Representations and Warranties
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November | December 2018
Beware of Rights to Assign
If the contract doesn’t limit a party’s right to assign, the default
rule is that either party may assign freely. A seller may not want
to allow a purchaser to assign to any entity, since the seller wants
to receive full consideration for the property by avoiding flip deals
and because the seller wants to know the buyer. Limitations on
the right to assign typically are buried in the sales agreement
miscellaneous provisions and are overlooked easily.
Follow Up on the Escrow
Ensure that earnest money is placed in escrow. Failure to do so
can be the result of an oversight or it can be a risk-avoidance
COMMERCIAL INVESTMENT REAL ESTATE
Buyers frequently ask sellers to warranty the history of a property.
No buyer wants to discover that a site that seemed perfect for
luxury apartments is a brownfield that will need decontami-
nation. A seller may have no knowledge of any environmental
problems, but fears being blindsided by revelations.
From a seller’s standpoint, such representations expand the
seller’s liability in the future and may discourage the buyer from
completing full due diligence. If you must agree to representa-
tions and warranties, stand firm on capping the limits of your
liability to 3 to 5 percent of the purchase price in most deals.
To avoid nuisance claims, set a floor for claims of $10,000 to
$25,000, depending on the purchase price.