The purchase or sale of commercial real estate property can be somewhat overwhelming for the average small business owner.
Knowing the general steps involved can help make alleviate much of the stress that accompanies this rather complicated process.
This checklist outlines six main aspects of a Florida commercial purchase and sale transaction and provides guidance for both the sellers and buyers.
Understanding the Florida Commercial Real Estate Closing Checklist
When a buyer of Commercial real estate property decides to purchase a property for sale, their next steps will generally follow these six steps:
(1) Letter of Intent
Although Florida law does not require a letter of intent (LOI), it is usually the first step in a commercial real estate transaction. And while there are no real rules as to what should be included in an LOI, the following is a list of the few terms that should always be included:
- Who are the parties involved? Identify the buyer and the seller.
- Where is the subject property located?
- What is the agreed-upon purchase price and any other must-have financial terms (i.e. initial deposits etc.)
- Are there any other important material terms?
Some options terms that are often useful to protect the parties involved are:
- Assurances that any information discovered by a party (usually the buyer) during the due diligence process will not be shared with outside parties.
- Financing contingency clause to protect the buyer
- Whether the LOI is binding or not, especially related to confidentiality terms, etc. Note, if the parties agree that the LOI is binding, it must explicitly state so.
(2) Determine the Type and ultimately Drafting of Purchase and Sale Agreement to Use
The second step in the commercial real estate closing checklist involves the commercial purchase agreement.
Commercial purchase agreements come in a variety of forms and can cover locations from multifamily housing to retail spaces to industrial properties or even undeveloped land.
Although with the typical provisions like the purchase price, deadlines etc., each type of purchase agreement may have important variations that should always be considered, such as whether there are existing tenants, contingencies for the development of the property, etc.
Remember, if your LOI was determined to be binding the resulting purchase agreement should contain any relevant provisions already agreed to.
Your attorney will be able to assist with a comprehensive list that will be suitable to your situation.
(3) Drafting and Reviewing Purchase and Sale Agreements
In Florida, Commercial purchase agreements are usually prepared by the seller’s counsel and circulated to the buyer’s counsel for review and comment.
However, this is not a fixed rule.
All of the terms of a purchase agreement are negotiable. The following is a list of considerations to include in the purchase agreement:
- Terms agreed to in the LOI (such as the purchase price and deposit amounts etc.)
- Description of the subject property (this includes both the real property and any personal property being transferred, as well as, any specific exclusions)
- Negotiate any Warranties, Covenants and Representations such as any applicable restrictions to the seller’s ongoing operation of the property after the contract is signed, residual liability, etc. This is a very important aspect of a Florida Commercial property purchase agreement and should not be negotiated without the counsel of an attorney.
- Define any agreed to Inspection period
- Determine which party will pay the various closing costs associated with the transaction
This list is by no means comprehensive and the parties should always be represented by a qualified attorney to assist them through this process.
(4) Diligence Review
The fourth step in the commercial real estate closing checklist involves due diligence related to the property in question.
Similarly to a residential contract, the buyer’s inspection period begins to run at the execution of the contract by both parties.
During this time, the buyer should attempt to find out as much as they can about the property’s physical condition to determine if they want to proceed with this transaction.
After the inspection period expires, the buyer’s deposit becomes non-refundable unless negotiated otherwise.
During the inspection period, the buyer will conduct a title review, a survey of the property, an analysis of potential environmental liabilities, a structural examination and a financial review to examine the property’s profitability.
(5) Prepare the Closing Documents
In Florida, an escrow or title agent assists with the preparation, exchange, and recording (where applicable) of the required documents.
The required documents to be signed by either party may vary depending on the complexity and terms of the specific transaction.
However, the following is a list of the basic documents that accompany almost all commercial real estate purchases in Florida:
- A transfer deed that will convey title of the real property to the buyer
- A Bill of Sale to convey any tangible personal property
- An assignment and assumption of service contracts that transfer the seller’s rights in any service contracts
- An assignment and assumption of leases that transfers any of the seller’s rights
- Notice to tenants and/or vendors
- Tenant estoppel certificates
- A FIRPTA certificate (see our prior article on this topic!)
As part of the closing, a title agency, such as Boca Raton Title Company ASR Law Firm, will also prepare a settlement or closing statement that will detail the parties’ debits and credits, based on information provided by the parties.
The statement may include, without limitation, the amount each party will pay, any prorations for taxes/rents etc., title insurance premiums, escrow/title fees, attorney’s and broker’s fees, as well as, any lender fees if the purchase is financed.
It is always advisable to have your attorney review this statement prior to finalizing the purchase.
Sometimes a purchase agreement will include escrow instructions and require that the escrow holder sign the purchase agreement to acknowledge its duties under the purchase agreement.
These escrow instructions serve as a road map to closing and should make clear all the requirements that must be satisfied by all parties to conclude the transaction. A few examples of such instructions are:
- Clearly state which documents and how many of each are required and what each party is required to deposit into escrow
- List all of the conditions that the escrow holder must be certain are satisfied before the escrow holder is permitted to “close” the deal
- Provide the escrow holder with the order in which the recorded documents are to be recorded
(6) Commercial Real Estate Closing Checklist -Other Closing and Post-closing Matters
The main purpose of the closing is to ensure that the transfer deed is properly recorded and that all funds are properly paid out.
The title agent should only ever pay our funds in accordance with the parties’ escrow instructions and the approved closing statement.
After all parties are paid and documents are recorded, the title agent will send the buyer their new Owner’s title insurance policy, as well we, the Lender’s title insurance policy to the lender for financed deals.
While this commercial real estate closing checklist is simply a starting point, it provides a good outline of the important aspects encountered in the average commercial real estate property purchase in Florida.
Even the simplest of commercial real estate purchases in Florida can result in major hurdles if approached without professional guidance.
To ensure all your interests are properly protected and there are no post-closing surprises, it is always advisable to retain an attorney to assist with your commercial real estate transaction.
ASR Law Firm regularly serves as the escrow/title agent for commercial real estate closings throughout Florida. Contact us to see how best we can help make your transaction flow from contract to closings as seamlessly and stress-free as possible.
Welcome to ASR
Welcome to ASR Law Firm! If you’re seeking a welcoming, friendly, and proactive team to help you with your transactional legal matter, I would be honored to speak with you. Let’s schedule a virtual consultation today!