Closing Your Commercial Real Estate Transaction
The primary difference between a commercial real estate transaction and a residential one concerns the entities involved. A residential transaction typically involves a transaction between two individuals, but because commercial properties are typically larger and used by business entities, they tend to be seen more as an investment rather than a purchase.
As such, these transactions are generally between two business entities. These business entities are set up to protect the individuals at their helm from any liability claims.
When closing a commercial real estate transaction, it is important to ensure all entities are operating legally. There are a few other things you should do while closing your sale.
The Little Things
With any commercial real estate transaction, conducting due diligence is the name of the game. In doing so, you can help to ensure an efficient real estate closing process.
Know Who Your Signatory is
It seems trivial, but mistakes with the signatory are more common than you might expect. Before closing any deal, make sure you review your company bylaws or speak with your company’s attorney or Of Counsel to avoid complications with the commercial real estate closing.
Get Your Finances in Order
Hopefully, your finances are in order whether you are closing a commercial real estate sale or not. Simply make sure you have the proper financial records that might be required during the closing process. Among other things, these include financial statements, tax returns, and outstanding debt.
Get the Title
Make sure you have the proper lease and other relevant paperwork ready to go during the closing process. If the title is not clean, communicate that with the potential buyers and inform them of possible legal solutions.
Set Fixed Expiration Dates for Reviews and Closings
Structure the contracts so that the buyer’s rights have a fixed expiration date. Specific rights to terminate should be waived beyond a fixed date as well during the closing process.
Use Escrow
Escrow agents are a defense against any issues that arise during the closing process. When closing commercial real estate transactions, escrow agents have slightly more freedom than in residential transactions (the Real Estate Settlement and Procedures Act does not apply). These agents can hold money, collect all necessary documentation, and then direct the money to its final destination.
Title and Closing Documents
The first step in the title review process involves the preliminary title report which essentially summarizes the current state of ownership. At this point, it is your responsibility as the seller to clean up the title. This could include unpaid liens, mistakes in title ownership, boundary disputes, or survey disputes. A title agent can assist you during this process.
The transfer package will include such paperwork as the title affidavit, non-foreign entity affidavit, and warranty deeds. Get these and other paperwork squared up well before the set expiration dates.
Lastly, the assumption of leases will be necessary as well, unless the commercial property is primarily raw land. This document does a couple of things: first, it passes both liability and benefit of the property from you, the seller, to the buyer; and, second, it provides formal documentation that the property has transferred ownership. This documentation is required by multiple landlord-tenant laws across the United States, so make sure you have checked it off your to-do list.
As always, consult with a lawyer and title agent to help the transaction proceed smoothly. If prepared in advance, the transaction can be an effortless one, but a few minor hiccups can really throw your sale for a loop!
The real estate closing process requires thorough examination throughout. For legal guidance on your next closing, schedule an appointment with an experienced commercial real estate attorney at Lee Scott Perres, P.C.
