Remedies

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					         Contract Drafting
         2010-03-03
University of Houston Law Center
Spring 2010
D. C. Toedt III
Panelists from Schlanger Silver
and Thompson Knight




 Louis    Alfred   Roshni   Thad
 Silver   Meyerson Patel    Armstrong
Objective of this class session
 High-level overview of typical transaction
 Survey of documents to be drafted
 Selected legal- and business points
 NOT:
     Equip students to do real-estate deals “solo”
     Provide contract forms (but see samples at
     http://www.OnTechnologyContracts.com/uhspring2010/
     from SEC‟s EDGAR database)
Review: Signatures
NORTH BY EAST ENTERTAINMENT, LTD.,
 by Northeast Platinum, LLC, its general partner,
    by:
     /s/ John Auletta
     John Auletta, sole member
      of Northeast Platinum, LLC
Hypothetical transaction:
sell a shopping center
The “players”
 The obvious ones: Seller, Buyer
 Other important players:
     Lender(s)
     Anchor  tenant(s)
     Other tenants
     Local government(s)
     Quasi-governmental entities
Letters of intent
Letters of intent
 Potentially dangerous
 Stmt. of present intention on basic points
     Price;timeline; earnest money; brokers; etc.
     Conditions precedent – due diligence, etc.
     Lock-up?
     Expenses of negotiation

 Expressly ID binding vs. non-binding terms
 Confidentiality? Press release?
 One for each phase of deal?
Agreement of
Purchase and Sale
The goal: Closing
 Swap deed for $, prom. note, etc.
 Old-style closings vs. modern logistics
     Signatures – how delivered?
     Consideration - ditto
     Escrow

   Closing instruction letter –
    brings everything together
Some key agreement components
1.   Timeline
2.   Covenants and/or closing conditions
      Review:   Damages and/or walk-away right
3.   Reps & warranties
      Review:  Distinction between the two
      Anything not apparent from due diligence = rep

4.   Disclosure schedule – exceptions to R&W
      Nomenclature:   “Schedule 4.7(a)”
Some key agreement components
   Exhibit forms
     Warranty  deed – Tex. Prop. Code
     Promissory note?
     Deed of trust?
     Estoppel certificate (signed by tenant)?
     Attornment / subordination / nondisturbance
      agreement (between lender & tenant)?
     Bring-down certificate?
Timeline:
Critical dates in agreement
   Closing date
     Might be tied to conditions being fulfilled, e.g.,
      receipt of govt. licenses / approvals
     Drop-dead date

 Title & survey review period – how long?
 Inspection period – how long?
 When does earnest money become „at risk‟?
Conditions to obligation-to-close
   Pre-closing & closing covenants satisfied
     Operationalcovenants
     Bring money / bring deed

   Seller‟s reps and warranties correct
    (materiality qualifier?)
     Good  title, etc. – due diligence
     “Bring-down” certificate?

   Estoppel certificates, etc.,
    from current tenants
Money transfer: Mechanics
 Wire transfer?
 Promissory note?
Covenants
 Deliver deed, money, etc.
 Buyer consent required for pre-closing:
     Amend.   or modif. of existing leases
     New lease
     New title encumbrance

   Indemnities
     Environmental   – how far back does it go?
     Others?
Covenants
 Maintain insurance coverage
 Risk of loss
     Sellermaintains risk of loss till the closing
     What happens if the place burns down before
      closing?
Due diligence
Title search/policy & related D/D
 Purpose – why?
 Searcher – who?
 Timing – when?
 Admin. mechanics – how, who pays?
 Issues to look for – what?
Drafting issues: Title
   Rep & warranties
     Seller   has good title
   Closing conditions
     No   problems with title search
   Covenants
     Deliver
            signed gen. warr. deed at closing
     Indemnities?
Survey of the property
 5Ws – who, when, why, where, what
 Whom to hire?
 Lender desires
 Issues to review include:
     Flood  plain
     Soil studies
     Platting
Drafting issues: Survey
 Rep & warranties
 Closing conditions
     No   (unscheduled) encroachments
   Covenants
     Indemnities?
Existing leases
 Rent roll
 Anchor tenant, smaller tenants
 Lease agreements
     Conflicting
                use- and exclusivity provisions
     Co-tenancy issues
     Termination rights
Drafting issues: Leases
   Rep & warranties
     No tenants in default (except as scheduled)
     No disputes, pending terminations, etc.

 Estoppel certificates
 Covenants
 Closing conditions
Commercial Leases:
Top 10 Things
 10: Permitted, prohibited uses
 9: Notice and opportunity to cure
 8: Consents and approvals not to be
  unreasonably withheld, conditioned or
  delayed.
 7: Beware of relocation rights
 6: Obligations should be conditions and
  covenants
Commercial Leases:
Top 10 Things
 5: Remedies – exclusive? Cumulative?
  Self-help?
 4: Future needs
 3: Options! (Renewal, expansion, termin.)
 2: Beginning, end of obligations
 1: Consistency!
Environmental due-diligence
   CERCLA, amended by
    Brownfields Law
     EPAfact sheets – useful
      summaries
   Current owner or
    operator liability for
    clean-up costs
   Exposure potential for
    lenders
                                Gowanus Canal, Brooklyn
   Strict liability, but …
“All appropriate inquiries”
due-diligence defense
 EPA fact sheet
 Hire an „environmental professional‟
     Licensed,   experienced
 ASTM standards (American Society for
  Testing Materials)
 Shelf life for investigations
Drafting issues: Environmental
 Rep & warranties
 Closing conditions
 Contingency plans
     Indemnities
Other questions?
Homework
   See the Web site
    (www.OnTechnologyContracts.com/UHSpring2010)
Last question
for panelists
(With apologies to Wait Wait Don‟t Tell Me)

				
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posted:10/10/2011
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