When buying a house, the seller typically will sign a deed and hand over the keys. However, commercial real estate transactions are usually more complicated, and most sellers of commercial properties have more deliverables. Buyers who do not get these items from sellers at the closing may find themselves trying to track down the sellers’ signatures months or even years in the future.
With forethought and planning, the buyer and seller can exchange all necessary signatures, information, and devices at a commercial real estate closing and save many headaches later. Following are ten areas to consider when planning for the closing:
The seller should sign a deed in recordable format transferring the real estate to the buyer. The deed should be of the type and have only exceptions that the parties have agreed to under the terms of the real estate purchase contract.
A deed only transfers title to real estate. Most commercial real estate transactions also include the sale of personal property. The type of personal property will vary depending upon the asset class. An apartment building sale might include refrigerators, fitness center equipment, and picnic and pool furnishings. For an office building, the personal property might include lobby furnishings, office equipment, and cleaning equipment. Regardless of the asset class, the seller should sign a bill of sale transferring title to the necessary personal property the buyer
Except for long-term commercial leases recorded in the real estate records, rights and obligations under leases may not transfer to a buyer with the real estate purchase. The seller and buyer should sign an assignment and assumption of leases to transfer the leases at closing.
Most service contracts also will not transfer automatically to the buyer at closing. By signing an assignment and assumption of contracts, the buyer obligates itself under the contracts. Likewise, an assignment and assumption of contracts will give buyer the benefits of these contracts.
Both parties should review all contracts to be sure that they are assignable. If not, the assignment and assumption of contracts might not be effective. If the contracts are not assignable or the buyer does not want to assume them, then seller should provide proof the contracts have been cancelled.
Some real estate may depend upon a vehicle to service the property’s needs or to provide amenities to residents. For instance, a hotel or a senior housing community might have a minibus that is used to shuttle guests or residents. A large apartment community might have a pickup truck to haul maintenance equipment and supplies. If there is a vehicle, title usually can only be transferred via seller’s signing the title over to buyer.
Since it is not uncommon for vehicle titles to be misplaced, the parties should be sure the title is available well in advance of the closing so a replacement can be ordered if necessary. If a lender is listed on the title, then the lender usually must either release the lien or agree to the transfer of title.
Many properties operate under a DBA or trade name that is different from that of the owner. If this is the case and the buyer plans to continue using that name, then the seller will need to transfer its rights at closing. Usually, this will require that the seller sign a form provided by the government office in which the DBA or trade name filing was made. If the seller has a state or federal trademark for the property’s name, that also should be transferred to the buyer.
A property owner needs for tenants and prospective tenants to be able to reach it. In the past, a property’s identity might have been tied to its phone number. Most buyers will not want to have to obtain a new telephone number for the property after the closing. Telephone companies usually require that the seller sign a consent on a specified form before the telephone number will be transferred to the buyer. The same is true for any cell phone numbers used in property operations where it would be challenging to inform tenants or others of a number change.
Today, the property’s website and email address may be more important than its telephone number. Transferring a domain name can be more complicated than transferring a phone number. Among other things, transferring a domain name requires that the seller provides its authorization on an ICANN standardized form of authorization.
Many tenants will not pay rent to the buyer until the seller provides official notice that the property has been sold and the lease has been assigned. Ideally, the seller and buyer will agree on a joint letter that both informs the tenant of the sale and tells the tenant where to send rent payments after closing.
The buyer likely will be obligated to return any tenant security deposits at the end of their leases. Therefore, the seller should pay the security deposit balance to the buyer at closing. In some areas, bonds or insurance is used instead of tenant security deposits. Where applicable, the seller should transfer its rights under the bonds or insurance policies to the buyer at closing.
Like a house sale, the commercial real estate seller should give the keys and garage door openers to the buyer at the closing. A commercial property might have many access devices or codes. There might be alarm codes, access fobs or cards, PINs for gates or storage facilities, or lock combinations.
The buyer also will need the passwords necessary to operate the real estate. Depending upon the property, this might include a Wi-Fi password, codes for keypad access, and computer login information.