One of the main reasons that a commercial property transaction might fall through when it is near to closing is because one of the parties has forgotten an important aspect of the transaction that needs to be considered before the relevant documents can be signed.
With that in mind we have created a small checklist of things that you need to keep in mind when closing on a commercial real estate property, to make sure that you cover all of the bases.
You need to ensure that all of the documents relating to the purchase are in place and ready. This includes all of the following:
• A signed letter of intent
• Any and all drafts of the purchase contract
• Any information relating to your legal counsel
• Access agreements
• Any client or portfolio manager authorisation that is required
• A fully completed purchase contract, that will be delivered into escrow
• Documentation for the initial cash deposits for the purchase
• Arranging for any bank accounts required to be set up
Title and zoning issues are also a high priority, so make sure you have the following:
• You have selected a title company whom you can send the seller’s title commitment to
• Have an ALTA survey carried out and ensure you have the right documentation
• Verify that all relevant leases and assets are in the seller’s name
If you are buying an apartment building or any form of commercial property where other businesses may become tenants and lease out space, you need to have all of the following:
• A current certified rent roll
• A review of all current leases and the related documentation for each.
• Your legal counsel should look over these leases and compare to the current review
• You need to look over all current tenant files
• Resolve any outstanding issues regarding lease
• Receive all reports relating to the tenants, including sales and receivables reports
• Transfer all tenant security deposits
• Review the tenant credit and payment history
• Prepare and sign the tenant Estoppel Certificates
• Final check on all documentation
The transfer of all relevant financial information is extremely important as well. This includes:
• Copies of any historical or proforma financial information
• Copies of utility bills
• Most recent tax statements
• An expense list for all expenses currently operating under the property
You will need to consider the possibility that there is any current action against the property or the existing owners and take that into consideration.
Getting insurance for the building is crucial, so it is important to get a quote as early into the proceedings as possible. Some of this may be covered by the Property Management Agreement.
Physical Property Inspection
Before any transaction is completed a physical property inspection must be carried out by the buyer to ensure that they are getting everything that they expect from the property.
Final Closing Documentation
To complete the transaction all of the relevant financial and legal documentation must be completed and handed in on time and be completely accurate.