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Contract Drafting 2011-03-08

Contract Drafting 2011-03-08

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Contract Drafting 2011-03-08

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  1. Contract Drafting2011-03-08 University of Houston Law Center Spring 2011 D. C. Toedt III

  2. Guest speaker Louis E. Silver Schlanger, Silver, Barg & Paine, LLP

  3. Objective of this class session • High-level overview of typical transaction • Survey of documents to be drafted • Selected legal- and business points • NOT: • Equip students to do real-estate deals “solo” • Provide contract forms

  4. Review: Signatures NORTH BY EAST ENTERTAINMENT, LTD., by Northeast Platinum, LLC, its general partner, by: /s/ John Auletta John Auletta, sole member of Northeast Platinum, LLC

  5. Hypothetical transaction: sell a shopping center

  6. The “influencers” • The obvious ones: Seller, Buyer • Other important players: • Lender(s) • Anchor tenant(s) • Other tenants • Local government(s) • Quasi-governmental entities

  7. Letters of intent

  8. Letters of intent • Potentially dangerous • Stmt. of present intention on basic points • Price; timeline; earnest money; brokers; etc. • Conditions precedent – due diligence, etc. • Lock-up? • Expenses of negotiation • Expressly ID binding vs. non-binding terms • Confidentiality? Press release? • One for each phase of deal?

  9. Agreement of Purchase and Sale

  10. The goal: Closing • Swap deed for $, prom. note, etc. • Old-style closings vs. modern logistics • Signatures – how delivered? • Consideration - ditto • Escrow • Closing instruction letter – brings everything together

  11. Some key agreement components • Timeline • Covenants and/or closing conditions • Reps & warranties • Disclosure schedule – exceptions to R&W • Nomenclature: “Schedule 4.7(a)”

  12. Some key agreement components • Exhibit forms • Warranty deed – Tex. Prop. Code • Promissory note? • Deed of trust? • Estoppel certificate (signed by tenant)? • Attornment / subordination / nondisturbance agreement (between lender & tenant)? • Bring-down certificate?

  13. Timeline: Critical dates in agreement • Closing date • Might be tied to conditions being fulfilled, e.g., receipt of govt. licenses / approvals • Drop-dead date • Title & survey review period – how long? • Inspection period – how long? • When does earnest money become ‘at risk’?

  14. Conditions to obligation-to-close • Pre-closing & closing covenants satisfied • Operational covenants • Bring money / bring deed • Seller’s reps and warranties correct (materiality qualifier?) • Good title, etc. – due diligence • “Bring-down” certificate? • Estoppel certificates, etc., from current tenants

  15. Money transfer: Mechanics Wire transfer? Promissory note?

  16. Covenants • Deliver deed, money, etc. • Buyer consent required for pre-closing: • Amend. or modif. of existing leases • New lease • New title encumbrance • Indemnities • Environmental – how far back does it go? • Others?

  17. Covenants • Maintain insurance coverage • Risk of loss • Seller maintains risk of loss till the closing • What happens if the place burns down before closing?

  18. Due diligence

  19. Title search/policy & related D/D Purpose – why? Searcher – who? Timing – when? Admin. mechanics – how, who pays? Issues to look for – what? Add’l info: Texas Dept. of Insurance page

  20. Survey of the property • 5Ws – who, when, why, where, what • Whom to hire? • Lender desires • Issues to review include: • Flood plain • Soil studies • Platting

  21. Drafting issues: Survey • Rep & warranties • Closing conditions • No (unscheduled) encroachments • Covenants • Indemnities?

  22. Existing leases • Rent roll • Anchor tenant, smaller tenants • Lease agreements • Conflicting use- and exclusivity provisions • Co-tenancy issues • Termination rights

  23. Drafting issues: Leases • Rep & warranties • No tenants in default (except as scheduled) • No disputes, pending terminations, etc. • Estoppel certificates • Covenants • Closing conditions

  24. Commercial Leases: Top 10 Things 10: Permitted, prohibited uses 9: Notice and opportunity to cure 8: Consents and approvals not to be unreasonably withheld, conditioned or delayed. 7: Beware of relocation rights 6: Obligations should be conditions and covenants

  25. Commercial Leases: Top 10 Things 5: Remedies – exclusive? Cumulative? Self-help? 4: Future needs 3: Options! (Renewal, expansion, termin.) 2: Beginning, end of obligations 1: Consistency!

  26. Environmental due-diligence Gowanus Canal, Brooklyn • CERCLA, amended by Brownfields Law • EPA fact sheets – useful summaries • Current owner or operator liability for clean-up costs • Exposure potential for lenders • Strict liability, but …

  27. “All appropriate inquiries” due-diligence defense • EPA fact sheet • Hire an ‘environmental professional’ • Licensed, experienced • ASTM standards (American Society for Testing Materials) • Shelf life for investigations

  28. Drafting issues: Environmental • Rep & warranties • Closing conditions • Contingency plans • Indemnities

  29. Other questions?

  30. Last question (With apologies to Wait Wait Don’t Tell Me)