Like buying commercial or investment real estate, selling can be hazardous. Most sellers want to be done with the property once it is sold. What they may not realize, however, is that if the contract is not carefully drafted, many terms in the contract, especially warranties and representations, may be binding after settlement, and can come back to haunt the seller for many years.
Commercial and investment real estate contracts typically allow the buyer to enter the property to determine whether it is feasible for the buyer’s purposes. If the contract is not well drafted, the seller runs the risk that the contract may be terminated and the seller left with a property which has been damaged, or with liabilities arising out of the buyer’s inspections. This should be addressed in the contract.
Commercial and investment real estate contracts often allow the buyer to begin some aspects of the development process, such as rezoning or site plan approval, before settlement. However, if the buyer does not settle on the property, the seller may be left with a very different property than he or she originally had; it might be rezoned or have proffers attached to it. The contract should address exactly what the buyer can do before settlement and how the seller will be protected if the buyer does not make settlement.
Seller financing, while sometimes necessary to sell a property, can be very hazardous. A seller may find himself or herself no longer owning the property and holding a promissory note which is, essentially, worthless. A buyer may ask for subordination; the right to have another lender be in first lien position ahead of the seller’s deed of trust. In the event that the other lender forecloses, the seller’s deed of trust would be extinguished. Before agreeing to this sort of thing, the amount of the third party financing, the terms of any subordination, and what other types of collateral might be available to secure the seller should be explored.
At Rice & Stallknecht, P.C., our real estate attorneys have been helping clients with these sorts of issues, and many more, for over twenty five years.