Commercial Agreements of Sale in Pennsylvania
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Krista Kochosky, Esq.
The Lynch Law Group
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Industrial
Retail Centers
Housing Development/Apartment Complex
Agricultural Lands
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Before You Draft…Ask Questions
Understand the business deal
Understand the property
Visit the Site
Create the First Draft / LOI
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Describe with Reasonable Particularity
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Land
DBV and Page; Tax Parcel No.; Lot and Block
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Buildings/Structures
25k SQF Building; Professional Office Building commonly known as
ABC Center.
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FF&E
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OGM rights
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PAR Block 2; Para. 5; OGM Addendum.
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Perform Survey
(Avoid unbuildable or landlocked property).
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Inquire of Seller
(Ask for Quit Claim deed for any area outside of boundary lines
to tack prescriptive easement rights in adjacent land).
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Check Recordings
(Any Declaration of Takings not identified in deed;
or any unsatisfied mortgage or assignment of rents)
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Check the Name
Examine vesting deed; Search State Corporation Bureau
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Right to Convey or Purchase
Examine POA or Guardianship, Examine Operating Agreement
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Deposits (Initial and Additional, PAR para. 2)
(No personal checks)
Escrow (PAR para. 2(C) and 24(D))
Balance (No personal checks)
Letters of Credit as Deposits
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Financing
PAR para. 7
Inspections
PAR para. 10
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Bank Loan
Amount, Term, Interest Rate
Time frame for Application
Failure to apply in good faith will be deemed a
default.
vs.
Seller held Note
Promissory Note with COJ
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May be waived.
If elected, part of Due Diligence
Physical Condition
Suitability for Intended Use
Statutory Land Use Restrictions
Zoning
Environmental hazard
Deed (boundaries and restrictions)
Insurability
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Scope
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Time
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Delivery of Documents by Seller (eg. existing leases)
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Confidentiality (NDA); Return of Documents
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Access; Scheduling
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Restoration, Indemnification and Insurance
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Signed Satisfaction by Buyer.
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Municipality May Require an Inspection and/or New C.O. and
Correction of Violations.
Agreement Should Address
:
Who is responsible to obtain?
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Agreement Should Require the Seller :
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To operate and manage Property in ordinary course until
Closing
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To perform obligations under the Leases and Contracts
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To comply with laws, ordinances, regulations and permits
and correct notices of violations
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Maintain insurance
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Refrain from further encumbrances
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3
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Put risk of loss on Seller.
Require Seller to provide notice of damage to Buyer.
Give Buyer termination rights.
Require Seller to maintain insurance at current level.
Provide an extension of the closing date to accommodate
Seller’s repair/restoration if required.
Address which party gets insurance proceeds in excess of
amount applied to repair.
Address credit for insurance deductible.
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Typically, Buyer has Right to Terminate
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Entitled to Credit if Electing
not to
Terminate
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TIME
When is there an Agreement?
Statute of Frauds – Specific Performance
Verbal – Available Breach of Contract Damages
Computation of Time Periods
Survival of Certain Obligations (e.g., Restoration, Indemnities,
Confidentiality)
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AS-IS/Release Provision
Representations Provision
Governing Law, Jurisdiction, Venue
Waiver of Jury Trial – Mediation
Attorneys’ Fees
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1. Conditions on Seller’s Obligation to Close:
Buyer has performed all obligations under the Agreement.
Buyer’s representations are true and correct in all material
respects at Closing Date.
Buyer has delivered Closing Certificate to Seller confirming
representations/warranties.
Buyer has executed and delivered all documents required
under the Agreement.
Buyer has paid in full.
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2. Conditions of Buyer’s Obligation to Close:
Seller has performed all obligations under the Agreement.
Seller’s representations are true and correct in all material
respects at Closing Date.
Seller has delivered Closing Certificate to Seller confirming
representations/warranties.
Seller has executed and delivered all documents required under
the Agreement.
Seller has executed and delivered the Deed and other documents
necessary for issuance of title policy to Buyer
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Seller has marketable title
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Right of Buyer to Obtain Title Commitment and
Survey
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Buyer’s Version
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Seller’s Version
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Exceptions (Eg. ROW Location)
5.
Mechanics Lien Exception / Lien Releases
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Realty Transfer Taxes
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Real Estate Taxes
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Sewer and Water Charges and Lienable Municipal
Assessments
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Planned Community, CCR, Condo and Similar Assessments
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Recording Charges
6.
Title
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Broker Commissions
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Identify parties’ brokers.
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State who is paying commissions.
3.
Include notices regarding Real Estate Recovery Fund.
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Buyer Default
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Seller Default
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Other Remedies
4.
Notice and Opportunity to Cure
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Scope of Indemnity
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Liability Limits
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Time Limits to Assert Claims
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Require Seller Notice to Buyer of Any:
Defaults
Request for Amendment
Proposed Assignments
Exercise of Renewal or Expansion Rights
Tenant Vacating Space
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Special Provisions
:
68 Pa.C.S. §§ 3101
et seq
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5101
et seq
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Declarations and By-laws
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Pennsylvania Sewage Facilities Act
35 P.S. §750.1
, et seq.
Pennsylvania Real Estate Licensing and Registration Act
63 P.S. §§455.101
, et seq.
Disclosure of Zoning, Compliance and Notices of Violation
21 P.S. § 611 – 615
Coal Severance Clause
52 P.S, § 1551
Subsidence/Subjacent Support Notice
52 P.S. §1406.14
Notice of Disposal of Hazardous Substances, Etc.
35 P.S. §6020.101
,
et seq
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Private Transfer Fee Obligation Act
68 Pa.C.S. §8106
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PA Real Estate Seller Disclosure Law
Does not apply to sale that consists of more than four residential dwelling units.
68 Pa. Stat. and Cons. Stat. Ann. § 7103 (West)
But Common Law Misrepresentation (negligent and fraudulent) theories still apply.
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Know the Parties
Know the Property
Know the Contractual and Statutory Obligations
Know the Default and Exculpatory Provisions
Protect and Advance interests of Client, but
in doing so, remember the Client’s Objective which is
to sell or buy the Property.
Commercial Agreements of Sale in Pennsylvania guide by Krista Kochosky, Esq. covers drafting, identifying property issues, basic agreement provisions, parties involved, property price considerations, and financial contingencies in commercial real estate transactions.
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Presentation Transcript
Commercial Agreements of Sale in Pennsylvania Krista Kochosky, Esq. The Lynch Law Group
INTRODUCTION COMMERCIAL AGREEMENTS OF SALE Industrial Retail Centers Housing Development/Apartment Complex Agricultural Lands
INTRODUCTION DRAFTING Before You Draft Ask Questions Understand the business deal Understand the property Visit the Site Create the First Draft / LOI
BASIC AGREEMENT PROVISIONS IDENTIFYING THE PROPERTY Describe with Reasonable Particularity 1. Land DBV and Page; Tax Parcel No.; Lot and Block 2. Buildings/Structures 25k SQF Building; Professional Office Building commonly known as ABC Center. 3. FF&E 4. OGM rights * PAR Block 2; Para. 5; OGM Addendum.
PROPERTY ID ISSUES - Perform Survey (Avoid unbuildable or landlocked property). - Inquire of Seller (Ask for Quit Claim deed for any area outside of boundary lines to tack prescriptive easement rights in adjacent land). - Check Recordings (Any Declaration of Takings not identified in deed; or any unsatisfied mortgage or assignment of rents)
BASIC AGREEMENT PROVISIONS THE PARTIES Check the Name 1. Examine vesting deed; Search State Corporation Bureau Right to Convey or Purchase 2. Examine POA or Guardianship, Examine Operating Agreement
BASIC AGREEMENT PROVISIONS THE PRICE Deposits (Initial and Additional, PAR para. 2) (No personal checks) Escrow (PAR para. 2(C) and 24(D)) Balance (No personal checks) Letters of Credit as Deposits
BASIC AGREEMENT PROVISIONS Contingencies Financing PAR para. 7 Inspections PAR para. 10
BASIC AGREEMENT PROVISIONS Financial Contingency Bank Loan Amount, Term, Interest Rate Time frame for Application Failure to apply in good faith will be deemed a default. vs. Seller held Note Promissory Note with COJ
BASIC AGREEMENT PROVISIONS Inspection Contingency May be waived. If elected, part of Due Diligence Physical Condition Suitability for Intended Use Statutory Land Use Restrictions Zoning Environmental hazard Deed (boundaries and restrictions) Insurability
BASIC AGREEMENT PROVISIONS DUE DILIGENCE, cont. Scope Time Delivery of Documents by Seller (eg. existing leases) Confidentiality (NDA); Return of Documents Access; Scheduling Restoration, Indemnification and Insurance Signed Satisfaction by Buyer. 1. 2. 3. 4. 5. 6. 7.
BASIC AGREEMENT PROVISIONS MUNICIPAL REQUIREMENTS Municipality May Require an Inspection and/or New C.O. and Correction of Violations. Agreement Should Address: Who is responsible to obtain? Seller s obligation to correct deficiencies.
BASIC AGREEMENT PROVISIONS OPERATIONS AND MAINTENANCE PENDING CLOSING Agreement Should Require the Seller : To operate and manage Property in ordinary course until Closing To perform obligations under the Leases and Contracts To comply with laws, ordinances, regulations and permits and correct notices of violations Maintain insurance Refrain from further encumbrances 1. 2. 3. 4. 5.
BASIC AGREEMENT PROVISIONS RISK OF LOSS; CASUALTY 3. Most Commercial Agreements: Put risk of loss on Seller. Require Seller to provide notice of damage to Buyer. Give Buyer termination rights. Require Seller to maintain insurance at current level. Provide an extension of the closing date to accommodate Seller s repair/restoration if required. Address which party gets insurance proceeds in excess of amount applied to repair. Address credit for insurance deductible.
BASIC AGREEMENT PROVISIONS CONDEMNATION Typically, Buyer has Right to Terminate 1. Entitled to Credit if Electing not to Terminate 2.
BASIC AGREEMENT PROVISIONS TIME When is there an Agreement? Statute of Frauds Specific Performance Verbal Available Breach of Contract Damages Computation of Time Periods Survival of Certain Obligations (e.g., Restoration, Indemnities, Confidentiality)
BASIC AGREEMENT PROVISIONS Litigation AS-IS/Release Provision Representations Provision Governing Law, Jurisdiction, Venue Waiver of Jury Trial Mediation Attorneys Fees
BASIC AGREEMENT PROVISIONS CONDITIONS OF CLOSING 1. Conditions on Seller s Obligation to Close: Buyer has performed all obligations under the Agreement. Buyer s representations are true and correct in all material respects at Closing Date. Buyer has delivered Closing Certificate to Seller confirming representations/warranties. Buyer has executed and delivered all documents required under the Agreement. Buyer has paid in full.
BASIC AGREEMENT PROVISIONS CONDITIONS OF CLOSING 2. Conditions of Buyer s Obligation to Close: Seller has performed all obligations under the Agreement. Seller s representations are true and correct in all material respects at Closing Date. Seller has delivered Closing Certificate to Seller confirming representations/warranties. Seller has executed and delivered all documents required under the Agreement. Seller has executed and delivered the Deed and other documents necessary for issuance of title policy to Buyer. Seller has marketable title
BASIC AGREEMENT PROVISIONS CONDITION OF TITLE Right of Buyer to Obtain Title Commitment and Survey Buyer s Version Seller s Version Exceptions (Eg. ROW Location) Mechanics Lien Exception / Lien Releases 1. 2. 3. 4. 5.
BASIC AGREEMENT PROVISIONS CLOSING COSTS, APPORTIONMENTS AND ADJUSTMENTS Realty Transfer Taxes Real Estate Taxes Sewer and Water Charges and Lienable Municipal Assessments Planned Community, CCR, Condo and Similar Assessments Recording Charges Title Broker Commissions 1. 2. 3. 4. 5. 6. 7.
BASIC AGREEMENT PROVISIONS BROKERS Identify parties brokers. State who is paying commissions. Include notices regarding Real Estate Recovery Fund. 1. 2. 3.
BASIC AGREEMENT PROVISIONS DEFAULT AND REMEDIES Buyer Default Seller Default Other Remedies Notice and Opportunity to Cure 1. 2. 3. 4.
BASIC AGREEMENT PROVISIONS IDEMNITY FOR PRE AND POST-CLOSING MATTERS Scope of Indemnity Liability Limits Time Limits to Assert Claims Notice, Opportunity to Defend, Right to Settle 1. 2. 3. 4.
LEASED PROPERTY PROVISIONS NOTICES Require Seller Notice to Buyer of Any: Defaults Request for Amendment Proposed Assignments Exercise of Renewal or Expansion Rights Tenant Vacating Space Tenant Bankruptcy, etc.
ADDITIONAL PROVISIONS AND DISCLOSURES PLANNED COMMUNITIES AND CONDOMINIUMS Special Provisions: 68 Pa.C.S. 3101 et seq. and 5101 et seq. Declarations and By-laws
ADDITIONAL PROVISIONS AND DISCLOSURES STATUTORY NOTICES AND DISCLOSURES Pennsylvania Sewage Facilities Act 35 P.S. 750.1, et seq. Pennsylvania Real Estate Licensing and Registration Act 63 P.S. 455.101, et seq Disclosure of Zoning, Compliance and Notices of Violation 21 P.S. 611 615 Coal Severance Clause 52 P.S, 1551 Subsidence/Subjacent Support Notice 52 P.S. 1406.14 Notice of Disposal of Hazardous Substances, Etc. 35 P.S. 6020.101, et seq. Private Transfer Fee Obligation Act 68 Pa.C.S. 8106
ADDITIONAL PROVISIONS AND DISCLOSURES STATUTORY NOTICES AND DISCLOSURES NOT REQUIRED OF COMMERCIAL SALES PA Real Estate Seller Disclosure Law Does not apply to sale that consists of more than four residential dwelling units. 68 Pa. Stat. and Cons. Stat. Ann. 7103 (West) But Common Law Misrepresentation (negligent and fraudulent) theories still apply.
Commercial Agreements of Sale Wrap Up Know the Parties Know the Property Know the Contractual and Statutory Obligations Know the Default and Exculpatory Provisions Protect and Advance interests of Client, but in doing so, remember the Client s Objective which is to sell or buy the Property.
