Commercial And Residential Real Estate Acquisitions

Businesses and individuals who are dealing with real estate matters often find that they need to work with experienced real estate attorneys to advise them on the important decisions they are faced with. In the Miami area, Santiago J. Padilla and his team of legal professionals have advised hundreds of clients regarding commercial and residential real estate acquisitions in Florida and around the region. Mr. Padilla has represented real estate investors, developers, businesses, lenders and individuals through his real estate law practice.

An Attorney For Residential And Commercial Real Estate Transactions

Issues that may come up in commercial or residential real estate transactions include:

  • Title issues. An unresolved lien or judgment might be unearthed during a search of public records. Having title insurance can cover a buyer regarding unforeseen problems with the title.
  • Letters of intent. It is important for commercial real estate investors to have a solid letter of intent that sets out the obligations of the parties involved in the transaction.
  • Purchase agreements. These generally differ from case to case.
  • Commercial lease agreements. Because of their frequently long-term nature, it is imperative that parties understand the terms of a commercial lease agreement, as it can impact their ventures for many years to come.

Residential Real Estate Closings

Residential real estate transactions involve the purchase of residential property. The purchase of a home usually represents one of the largest investments that individuals make, often causing residential real estate closings to be quite hectic. Therefore, both buyers and sellers need to be adequately prepared.

Mr. Padilla highly advises buyers to engage an attorney very early in the transaction process, even as they are hunting for a home in Miami or elsewhere. Indeed, contracts may need to be signed early in the transaction. In addition, sellers should also engage an attorney early in the sale transaction. In fact, when a seller lists property in the multiple listing service, the real estate agent will usually require the seller to enter into a listing agreement, which may restrict to whom the person may sell the property. These contracts contain legal obligations that need to be reviewed by a real estate lawyer.

The Real Estate Contract and Closing Process

When a buyer is ready to make an offer on a property, it is important to obtain the advice of a real estate lawyer. This is the stage during which the obligations of the parties are established, including:

  • The price
  • The terms of the purchase, such as whether the property is being bought "as-is"
  • Whether the seller will offer guarantees
  • Whether there will be a repair limit on the items the seller will need to repair

Also, the residential real estate contract provides a timeline for the closing, allocates who pays for what items in the closing process, sets forth the time allowed for certain events and includes contingencies, such as what happens if the buyer cannot obtain financing.

Property inspections are an important aspect of the real estate transaction. If the purchase contract is an "as-is" contract, then the inspections will generally be the buyer's chance to make a final assessment of the property. If the seller provides guarantees, then the inspection report will reveal the items that need to be repaired and the estimated cost of the repairs.

The buyer's attorney will also perform a title and lien search and request a survey. The buyer's attorney or the title company will schedule a closing date and coordinate the closing. The closing is then conducted by the closing attorney, documents are signed, funds are exchanged, and the transaction is finalized by placing the deed, mortgage and other documents on public record.

The transaction concludes with the issuance of the title insurance policy to the purchaser (usually within 30 to 45 days after closing) and the receipt by the seller of the canceled mortgage loan documents along with any escrow account money.

Title Insurance

Mr. Padilla is an agent of Old Republic National Title Insurance Company, one of the largest title insurance underwriters in the United States. Title insurance protects homebuyers from financial loss and hardship related to unknown judgments and liens, forged transfers, inconsistencies involving a property's title or misapplication of fiduciary funds.

Once the purchase contract has been signed by both parties, our staff searches public records to look for any problems with the home's title. This search typically involves a review of land records going back at least 21 years. Approximately one-third of all searches reveal a title problem. For example, the prior owner may have had renovations performed on the property, but never fully paid the contractor. Or the prior owner may have failed to pay local or state taxes. We seek to resolve problems like these before the closing.

Nevertheless, on occasion, title problems occur that simply cannot be found from a diligent search of public records, such as an unrecorded easement or an aerial encroachment that was missed by the surveyor. This is when a title insurance policy protects the buyer.

Commercial Real Estate Transactions

Commercial transactions involving the purchase of commercial real property are very different from residential real estate transactions. Not only can they be more complex, but many of the rules applicable to residential real estate transactions do not apply to commercial transactions.

One of the biggest differences between residential real estate transactions and commercial real estate transactions is that most commercial buyers are using a business entity to acquire the property, whereas in residential transactions, most buyers will purchase property in their own name, especially if they are husband and wife. Furthermore, title examination and due diligence will also be more complex. For example, in a commercial transaction, a survey must show not only boundaries, but also easements and servitudes, rights of way and other features of the property that may not be relevant for a residential transaction. An experienced commercial real estate attorney helps ensure that the buyer's interests are protected at every stage of the transaction, and helps avoid problems down the road.

Most commercial real estate purchase transactions involve the following:

  • Negotiating and drafting a letter of intent
  • Conducting due diligence to make sure that the property meets the buyer's intended purpose
  • Obtaining municipal permits or approvals
  • Obtaining financing
  • Closing the transaction

Significant to most commercial real estate transactions is negotiating the financing documentation and closing the joint venture agreements, financing and acquisition agreements.

Letter of Intent

The letter of intent (LOI) for commercial real estate transactions is a highly complicated legal document. However, in many cases the LOI is extremely valuable and provides a basis for determining how far apart the parties are on fundamental aspects of the transaction. Issues that it needs to address include:

  • Whether the buyer may assign the agreement
  • The time period for performing due diligence and other inspections
  • When the earnest money will become nonreimbursable
  • Which party will pay for the costs of the transaction

The above listing is a sample. An experienced commercial real estate lawyer can draft a LOI addressing the legal issues applicable in a given transaction.

Purchase Agreements, Due Diligence and Environmental Assessments

In Florida, real estate purchase agreements are usually drafted on standardized forms. An experienced commercial real estate attorney should review these forms and make modifications depending on the interests of the buyer and seller. However, in many sophisticated commercial real estate transactions, the purchase agreement is specifically drafted for the transaction, normally by counsel for the buyer.

In most cases, a commercial real estate purchase agreement provides a due diligence period during which the buyer evaluates the property to determine whether it meets the intended use. Due diligence includes performing a survey and an environmental assessment. The survey will be one of the bases for determining what use the buyer may make of the property. As such, most surveys for commercial properties ought to show all easements of record, all setbacks and all encroachments, including aerial encroachments of antennas, electrical boxes and so forth.

An environmental assessment evaluates the potential environmental risks. It should be conducted in accordance with the American Society for Testing and Materials and standards established by the U.S. Environmental Protection Agency.

Guarantees

Purchasers of commercial real estate must also be cautious when purchasing rental real estate, especially if the real estate has a personal guaranty of the tenant that is renting the property. In the typical case, the buyer is interested in purchasing the commercial property especially because there is a corporate tenant with a long-term lease and the shareholders of the corporate tenants have signed a personal guaranty securing all of the obligations under the lease agreement. The buyer, however, must consider that the personal guaranty may become void and unenforceable if it does not contain the appropriate language.

Specifically, under Florida law, whether or not a guaranty is enforceable by assignees of the principal requires us to determine what type of guaranty it is. The law distinguishes between types of guaranties. The various types of guaranties to be considered include general vs. special; conditional vs. absolute and continuing. A "general guaranty" may be enforced by any party to whom it is presented. A "special guaranty" is one addressed to a particular person, firm, or corporation. An "absolute guaranty" is one that does not attach conditions for enforcement. A "conditional" guaranty is one which is not enforceable until certain conditions precedent have been met. A "continuing guaranty" is one that remains in effect until revoked.

When a guaranty by its language runs only to one person or entity, and not to any of its heirs, successors and/or assigns, then that guaranty is a "special guaranty." Generally, in order for a guaranty to be a "general guaranty," it must contain "successors and/or assigns" language after the name of the principal or party to whom the guaranty is designed to benefit. This is important because under Florida law, a special guaranty is usually not assignable. A special guaranty becomes unenforceable if it is assigned. However, a general guaranty is assignable and enforceable by assignees of the principal.

Yet, there are certain exceptions to these general rules that have been carved out by the courts. First, Florida courts have stated that a "special guaranty" will be enforceable by an assignee of the principal whenever the assignment was shown to have been made after a breach giving rise to the liability. Second, courts in other states have held that a guaranty with language that is very generalized is a "general guaranty" because of the broad sweep of the commitment provided.

Condominium Development

Mr. Padilla's real estate practice also involves condominium development, which deals with advising clients in connection with new residential, commercial and mixed-use condominium projects. Such projects usually encompass a wide array of legal areas, including land use, construction, financing, contracts and condominium law. Over the last 10 years, Mr. Padilla has worked on several condominium development projects, acting as developer's counsel, reservation agent and project counsel.

Condominium Conversions and Florida Law

Mr. Padilla is also involved in representing clients that are undertaking condominium conversion projects. These projects involve turning existing residential or commercial developments into condominium projects. Condominium conversions in Florida have grown significantly over the last 10 years, so much so that the Florida legislature has provided certain rules with which a developer must comply.

For example, tenants of an existing residential building have the right to remain on the property for almost a year after receiving notice of conversion. Prospective developers need to take these rules into account. Under Florida law, a developer that wants to convert a residential apartment building into a condominium must comply with the Condominium Act and, in particular, Section 718.101 et seq., Florida Statutes, which includes recording the declaration of the condominium and granting to the purchaser of each unit an implied warranty of fitness and merchantability. The creation of the real property condominium ownership form is achieved when the developer complies with Part I of the Condominium Act.

A developer may also need to establish an association for the condo owners. With Mr. Padilla's experience in condo development, he and his partners are able to draft association bylaws and advise developers about their obligations and rights in setting one up.

Santiago J. Padilla and his team of legal professionals can be contacted here via their online contact form. Prospective real estate clients may also call 800-483-7197 to schedule a consultation regarding their legal needs.