Real Estate/Loan info Lerman Law Partners, LLP Attorneys San Rafael California

Purchase and Sale Agreements
Virtually all purchases of real estate are comprised of at least two separate negotiations. The first is the letter of intent. The second is the detailed purchase and sale agreement.

The single biggest mistake most investors make in buying real estate is getting the lawyer involved after they negotiate the letter of intent. This is too late. Even if a letter of intent is made "non-binding", once it is put in writing, it plays a key role in the negotiation and documentation of the formal purchase and sale agreement. Any mistakes or oversights at the letter of intent stage may very well create problems throughout the entire deal.

Even if you are a sophisticated, seasoned investor, and even if you have a sharp broker negotiating on your behalf, the time to get a lawyer involved is from the first serious communication of an offer (whether orally or in writing). Every negotiation for the purchase of real estate includes so many potential economic opportunities and hidden costs, even if the "standard" A.I.R. form is used. You owe it to yourself, your family and your investors to take advantage of every opportunity and avoid all unnecessary costs.

Our Firm can assist you in each step of this process.

Selecting and Forming an Ownership Entity
An essential step in the acquisition process is the selection of the most appropriate type of entity and the formation of that entity. The most common entities considered by real estate investors are general partnerships, limited partnerships and limited liability companies.

Selecting the right one involves a thorough consideration of various business and tax factors. Business factors include the ease/difficulty of formation, costs of formation, management and control issues, agency authority of owners and management, liability of the owners for business obligations, transferability of the interests, ability to raise capital, securities issues, continuity of the business, and the number of participants involved. The tax factors are typically handled in conjunction with the investor's tax advisor.

Whether you are a sole investor, have a single "partner", have a "friends and family" venture, doing a small private syndication or launching a large project with hundreds of investors, you need to drill through a comprehensive analysis of these factors to make sure you are making the right decision from the beginning. Any changes later may have severe tax consequences.

Our Firm can assist you in each step of this important decision.

Getting a Loan
Just as important as the purchase contract, are the terms and conditions you negotiate to finance the acquisition and/or development of real estate. As with the purchase negotiation, it is best if your attorney is fully involved from the very inception of the transaction in order to maximize your protection. This point cannot be overemphasized. Too frequently borrowers negotiate and execute the commitment for the loan prior to bringing their attorney into the transaction. In fact, even before the commitment, the application often establishes most of the important terms. Once the commitment has been finalized and executed, all your rights and obligations have been substantially fixed. The attorney's ability to act on your behalf is, thus, severely circumscribed. Although you may feel that the negotiation of the mortgage loan commitment is exclusively of a business nature, this is not the case. Most of the important legal rights and obligations will be fixed in the commitment. Many of those rights that are important to you will be completely omitted from the commitment if competent counsel does not represent you at the time of negotiation of the commitment itself. Some of the key issues typically encountered in loan negotiations include the loan amount, interest rate, amortization, maturity date, personal liability, due-on-sale clauses, prepayment privileges, loan fees, standby fees, insurance and impound requirements, and subordination.

Our Firm can assist you in each step of this important, complex negotiation.

Dealing with partners and/or investors
Most of the issues that arise between partners and/or investors are dealt with at the time the entity is selected and formed and the necessary operating documents drafted. However, one of the most frequently over-looked issues-and one that may not be addressed in the initial documentation-is the "exit" strategy. That is, how does one leave the venture and what does it mean to the departing party and the remaining parties? We strongly recommend that, whenever there are two or more parties in an ownership entity, a buy-sell agreement be negotiated and documented-even when only family members are involved.

A buy-sell agreement provides for the acquisition of the interest of a withdrawing member (LLC) or partner by the business entity or its remaining principals. The agreement usually restricts the owners' ability to transfer their interests, and it provides the terms under which the entity or other owners may or must acquire the interest of a member or partner on death or other specified events. A buy-sell agreement can benefit the entity and its owners by:

Preventing outsiders or heirs, whose interests may conflict with those of the remaining owners, from obtaining an ownership interest;
Ensuring continuity of management and control by the remaining owners;
Providing for the orderly liquidation of the owners' interests in the event of death, disability, retirement, or other forced or voluntary withdrawal;
Preventing the continued involvement in the business of retired or inactive members or partners;
Creating a market for the shares of deceased, retiring, or withdrawing members or partners;
Providing cash to pay death taxes and estate settlement costs, and;
Fixing the value of the interest, including a minority discount, for estate and gift tax purposes.

Our Firm can assist you in each step of these important, complex negotiations.

Dealing with Contractors
If you own real estate, even if it is existing income property, chances are you will deal with contractors at some point. You will need to work with contractors on everything from initial development to repair, remodeling or add-on work to tenant improvements. In every instance, as with purchasing and financing negotiation, the earlier you get your lawyer involved, the better. From the moment you put a project out to bid, important decisions need to be made including what to include in the scope of work, the contract form you use, the method of pricing the project (lump-sum, cost-plus, or cost-plus with a guaranteed maximum), and the extent of the drawings and specifications (contracts with complete drawing and specifications, design-build contracts, or combinations).

Once these initial decisions are made, there are many important issues that must be addressed including a detailed description of the work, progress payments, retention, substantial completion, delay damages, change orders, allowances, insurance, guaranty, indemnity, and the right to stop work. The unfortunate reality is that, notwithstanding the best intentions of all parties involved, a great many construction projects ultimately result in some type of litigation. The party with the strongest contract at the beginning of the project will have a distinct advantage in later disputes.

Our Firm can assist you in each step of these important, complex negotiations.

Dealing with Tenants
Unless you are an owner-user without any tenants or subtenants, you must deal with tenants. The most common governing document is the lease. However, in the course of dealing with tenants, you may very well need to negotiate other contracts including easement agreements, reciprocal easement agreements, license agreements, covenants, and conditions and restrictions (CCR's).

The lease, as with other real estate contracts, is frequently prefaced with some kind of letter of intent or offer/counter-offer negotiation. Again, early involvement of your lawyer is essential, even with competent broker representation. Indeed, today with the proliferation of brokers specializing in "tenant representation", you as the property owner need to be proactive from the beginning in guarding your rights and avoiding unnecessary costs.

The lease is one of the most important documents involved in maximizing your investment profits. It determines your revenue and your expenses. When negotiating commercial leases, you must focus on:

Preserving your net economic returns;
Eliminating unforeseeable, unquantifiable, or uninsurable risks that could reduce their returns (especially risks that could affect payment of base rent or operating costs), and;
Maintaining the value of your building and the status of your tenant mix.

In this connection, while there are many key negotiating points in the lease, some of the most critical areas are:

The lease commencement date;
Payment of tax and operating expenses;
Assignment and subleasing;
Damage and destruction provisions, and;
Tenant work letter.

Our Firm can assist you in each step of these important, complex negotiations.

Dealing with Cities
A variety of situations arise during the course of owning commercial property that may require you to deal effectively with government agencies. Typically, this happens mostly with your local city and/or county government. However, depending on the location of the property and the issue involved, it can also involve other agencies.

This may be in the context of something as small (but important) as getting a variance to permit a certain type of use in your project, to a full-blown entitlement process for a development project.

These negotiations are sensitive. They involve issues that are important not only when they are agreed upon but frequently for generations to come. They can have a profound impact on the market value of your property. They require a forward-looking, sensitive, detail-oriented, diplomatic approach.

Our Firm can assist you in each step of these important, complex negotiations.

Litigation
Litigation is a risk at every stage of real estate ownership. Indeed, even if you never own a piece of real estate, your mere attempt to acquire real estate involves certain risks that disputes may arise. There is nothing you can do to eliminate this risk. However, there are many things you can do to anticipate and protect yourself.

Some of these protective measures include forming the appropriate entity through which you will transact business and having competent legal representation as early as possible in any negotiation to ensure the best document possible going into a deal. There are other measures available as well.

Even if you have comprehensive documents, however, disputes may arise in a number of areas, including the purchase and sale, the loan, property issues, boundary issues, construction, and mechanic's liens, to name a few.

As with everything else, it is critical in dispute resolution to have your lawyer involved at the earliest point possible. A competent attorney will evaluate the merits (and weaknesses) of your case, discuss with you the many alternative dispute resolution options available today (including mediation, arbitration, and the many hybrids), help you understand the potential economic upside and downside of these various forms of dispute resolution, discuss litigation strategy and, together with you, formulate an action plan.

Our Firm can aggressively represent your interests in any real estate litigation matter.

Selling
At some point, every property must be sold. It is the objective of most sellers, once the closing takes place, to walk away from the property with no further obligations or liabilities whatsoever. Unfortunately, many property owners do not realize that disposing of their investments requires just as much diligence as acquiring them.

There are many negotiating points in the typical sale that can tie up the seller's property for years in costly litigation without any ability to sell to anybody else or leave the seller on the hook after the sale for much longer than he or she ever anticipated.

A seller must be vigilant in negotiating everything including the description of the property, the purchase price, the deposit, the contingency period, conditions to close, representations and warranties, damage and destruction consequences, prorations, and the all-important indemnification clause.

It is beyond the scope of this website to discuss all the important issues in this most important negotation.

Our Firm can assist you in each step of this important, complex process.