Top Ten Reasons for Getting a Real Estate Lawyer Involved Early in Non-Real Estate Transactions

Top Ten Reasons for Getting a Real Estate Lawyer Involved Early in Non-Real Estate Transactions

Sanford A. Weiner, Robert P. Wright and Sheila Nolan Gartland

10.An early introduction provides ample time to understand the transaction and to identify and resolve issues.

9.An early introduction offers access and an opportunity to draft/revise the governing document to include relative terms/protections (to avoid “You repped to WHAT?”).

8.An early introduction permits you to ask for directions before you are lost in real estate Hades.

7.At the outset, understand the import of the real property associated with the transaction and act accordingly--you can avoid eating crow for dinner: “The real property is not really essential to the deal [oops]…..”—

6.Title insurance, surveys and timing really do matter.

5.You can impress clients with YOUR knowledge of relevant real property issues—or know when to keep your mouth closed….

4.Even if the real property is not “material,” clients can be exposed to significant, unplanned for liability.

3.Real estate lawyers will prepare or review/revise governing documents, real property conveyance documents, title commitments and policies and due diligence—oh, my!

2.Real property is a unique asset – real estate lawyers use appropriate due diligence to discover the true value.

And the #1 reason for getting a real estate lawyer involved early in non-real estate transactions…..

1.We help make the firm good!

10.An early introduction provides ample time to understand the transaction, to identify and resolve issues.

When real estate lawyers are introduced to a transaction in its early stages, they serve a fundamental part in the project management of the transaction. Early involvement enables real estate lawyers to identify issues and to work quickly to resolve the issues or offer alternatives.

It is important for the real estate lawyers first to understand the nature of the transaction. The transaction may involve, for example, an asset purchase, a stock/equity purchase, a merger, a conversion from one entity to another, the formation of a limited liability company or other business entity, or a joint venture. The transaction may involve a financing component where lenders are primarily focusing on the creditworthiness of the borrower or sponsor and the real property is merely part of the collateral package. Conversely, the finance project could be for project development where the real property may be integral to the transaction. Other non-real estate transaction scenarios may relate to public/private partnerships, public offerings/private placements of equity or debt, or portfolio purchases of underperforming loans/distressed debt.

Real estate lawyers can not only assist with all of these types of transactions, but also can help identify, based on the type of transaction, the importance of the real property involved in the transaction and the nature of the due diligence appropriate to the transaction.

Experienced real estate lawyers who have been involved in non-real estate transactions understand their supportive roles. Real estate lawyers will not try to convert the transaction into a real estate transaction, because it is not, but will identify key issues which relate to the real property portion of the transaction. Real estate lawyers may also analyze or approach the non-real estate transaction differently than non-real estate lawyers and, as such, promote distinct roles and objectives for the transaction. However, real estate lawyers need to be, and generally are, aware of the clients’ approach to the transaction in order to tailor their role and involvement accordingly.

Lead lawyers to a non-real estate transaction who recognize the distinct role of real estate lawyers as part of the transaction team, utilize and incorporate real estate lawyers in the transaction. Real estate lawyers may subtly tout their expertise and their value to a non-real estate transaction to non-real estate lawyers.

9.An early introduction offers access and an opportunity to draft or revise the governing document to include relative terms/protections (to avoid “You repped to WHAT?”).

Real estate lawyers can assist in the drafting or revising of the governing document to include real property-related terms and provisions. Real estate lawyers will determine the lead lawyer’s/client’s overall approach to the transaction by reviewing key provisions of the governing document. In doing so, real estate lawyers will become aware of the general format of the document, notice drafting particulars (for example, if “materiality” is limited or defined in one provision so as not to repeat materiality qualifiers in other provisions) and focus on the use of consistent terms.

Specifically, real estate lawyers understand representations and warranties and typical indemnification provisions related to real property. They are guided by the type of transaction and the nature of the real property. In certain transactions, buyers receive representations and warranties regarding the current and past state of the target company (either from sellers in a stock purchase or from a target in an asset sale or merger). On the other hand, sellers generally provide limited indemnification for breaches of representations and warranties, and usually as the sole remedy for damages suffered by buyers. Experienced real estate lawyers understand representations and warranties in essential real property transactions and can offer reasoned responses to proposed representations and warranties.

In addition, real estate lawyers understand the relevance of various types and limits of indemnifications relating to real property. For example, sellers may agree to indemnify buyers for any damages resulting from a real property-related incident, e.g., zoning violations. Real estate lawyers can analyze assorted indemnification provisions and provide relevant insight. Such provisions may include deminimus thresholds (for example, no claim less than $10,000), deductibles or baskets for cumulative indemnification claims (no claims unless total of all damages exceeds $250,000); or caps on the overall indemnification claims (for example, sellers would have no liability greater than x% of the purchase price) – all of which can be scrutinized by real estate lawyers in connection with the transaction.

Real estate lawyers can expose nuances of the relationship between the realities of real property representations and warranties and the applicability of proposed indemnifications. In addition, real estate lawyers can assess the associated risks and offer guidance on balancing them.

Real estate lawyers can also advise on post-closing covenants, purchase price adjustments, and other portions of the transaction which include real property. In all cases, real estate lawyers should, and would, become acquainted with the tone of the governing document and draft appropriate revisions (incorporating defined terms, etc.) to the governing document for the non-real estate lawyers’ review. Non-real estate lawyers certainly can appreciate the practical approach of real estate lawyers who take the initiative to draft revisions in accordance with the tenor of the governing document. Such drafting would include any and all necessary real property provisions or revisions using consistent definitions and usage covenants and providing track-changes or compared versions of the governing document.

8. An early introduction permits you to ask for directions before you are lost in real property Hades.

Real estate lawyers understand that different levels of due diligence exist in assessing any real property connected to a transaction. In addition, real estate lawyers’ experiences permit them to recognize that different levels of due diligence may be required, based on the overall importance of the real property to the totality of the transaction. First and foremost, real estate lawyers work with lead lawyers and the client to evaluate and clarify the value of the real property and the significance of the real property to the transaction. Once the real property is evaluated, a due diligence plan, consistent with the import of the real property to the transaction, can be discussed and put into place. If the real property is “boot collateral” to the transaction, the depth of the due diligence may not be great. However, if the real property is a main driver in the transaction, then real estate lawyers would suggest a comprehensive due diligence plan. Similarly, if the time period allotted for due diligence is short, the real estate lawyers and lead lawyers may need to discuss an abbreviated due diligence plan and focus attention on the most valuable assets.

Real estate lawyers also offer critical value by identifying existing agreements which may affect the real property involved in the transaction. For example, consider the relevance of: financial covenants in current debt facilities which may restrict the use or transfer of the real property; commercial leases which may prohibit the assignment of the interest therein without consent; and mineral rights or surface use agreements which may encumber the real property. Once identified, the real estate lawyers can advise on methods by which best to address and resolve related issues.

Real estate lawyers will analyze the real property, whether owned or leased, and determine the level of due diligence necessary to reveal and assess real property matters. For example, real estate lawyers can evaluate and determine the importance of the real property to the business of a target company and assist in identifying the value that a buyer may ascribe to such real property.

Real estate lawyers can use the experience they have gained in dealing with different types of assets to assist in evaluating the real property which is subject to the transaction. Different types of assets may include energy assets (power generating plants, refineries, storage facilities, pipeline/gathering lines, transmission and distribution lines). Non-energy infrastructure assets, such as toll roads, transportation facilities, and stadiums/arenas are also subjects of typical real property transactions but may also be the subject of non-real estate transactions. Likewise, dealing with hospitals, surgical centers, medical office buildings and other health-related assets fall within the experience of many real estate lawyers.

Similarly, real estate lawyers also have familiarity with commercial leases and can offer insight as to the significance of leased property as it relates to a specific transaction. For example, real estate lawyers can identify and evaluate leases which contain change-of-control or anti-assignment provisions, landlord consent provisions where market rental rates may have dramatically moved since the original date of the lease, and sale-leaseback/leveraged lease situations where a landlord’s remedies may be more oppressive than a typical lease.

6.Title insurance, surveys [and timing] really do matter.

Real estate lawyers understand the need for strong project management, including the necessary lead time for due diligence related to the real property. Real estate lawyers have expertise in arranging for title insurance, surveys, and other due diligence items, and are cognizant of the lead time related to such items. Not only are real estate lawyers aware of the time involved in obtaining and reviewing title insurance commitments and surveys, but they also are aware of the need of explaining the necessity of title commitments, title insurance and surveys. Real estate lawyers can coordinate the due diligence necessary to examine the real property and to identify (and resolve) substantive issues.

In addition, real estate lawyers will review and explain title issues which may be identified in title commitments and surveys and explain the impact of any such issues to the transaction, including the justification for obtaining title insurance. Also, real estate lawyers will identify, plan and coordinate due diligence and its timing, including resolution of any issues revealed by such due diligence. Their experience permits them to incorporate the timing not only for the due diligence inspections, but also for resolution of issues uncovered during the due diligence.

5.You can impress clients with YOUR knowledge of relevant real property issues—or know when to keep your mouth closed….

Because of their familiarity with real property transactions in general, real estate lawyers can break down the real property aspects of a non-real estate transaction in a manageable and informative way. Real estate lawyers view a “real property deal” with the same lens, regardless of whether it is presented as a traditional real property transaction or contained within a non-real property transaction. Such view is tempered only by the significance, or lack thereof, that the real property plays in the non-real property transaction. Based on their relevant experience, real estate lawyers will facilitate discussions so that their clients outline the necessary steps and minimize timelines for due diligence and other related actions.

4.Even if the real property is not “material,” clients can be exposed to significant, unplanned for liability.

Acquisition of real property assets, even if not material to the transaction, can expose a purchaser to significant and unplanned for liability. For example, environmental issues affecting real property can present significant and long-term liability to a purchaser. As such, real estate lawyers will work with environmental lawyers on the team from an early stage to evaluate such potential liability. The lawyers will discuss and inform their clients on the necessity for an environmental site assessment or assessments, as the case may be. Part of any evaluation would include the past and present use of the real property and any violations issued, whether or not cured, relating to the real property. Clients need to understand the potential liability associated with contaminated properties, including the need for a baseline date for both indemnification and liability purposes.

Similarly, acquisitions that involves leased real property may expose clients to significant liability. Accordingly, the term of each lease should be evaluated, as well as prohibitions contained in leases with respect to transfer of the real property, use of the real property and other related issues.

3.Real estate lawyers will prepare or review/revise governing documents, real property conveyance documents, title commitments and policies and due diligence—oh, my!

Real estate lawyers are well equipped to handle all parts of a transaction. As discussed earlier, real estate lawyers can review and revise, where necessary, key definitions and provisions of the governing document to address representations and warranties, covenants and conditions, and indemnities related to the real property. Real estate lawyers may also prepare and review schedules containing real property information, monitor the information received in due diligence and communicate resolutions to discovered issues.

A non-real estate lawyer can rely on real estate lawyers to:

1.Prepare all real property-related documents, including:

(a)conveyance documents;

(b)assignment documents;

(c)leases, easements, licenses covering space/facilities that one party owns and the other needs the right to use; and,

(d)deeds, easements and the like to separate assets into those assets to be transferred and those assets to be retained

–e.g., separating generating assets from transmission assets in connection with energy deregulation

–e.g., separating assets of a line of business/products in a refinery/chemical plant from assets used for other lines of businesses/products

2.Advise in the context of possible corporate “moves” of the assets from one affiliate to another; and,

3.Advise on allocations of conveyance fees, transfer taxes, mortgage taxes and itemized taxes

2.Real property is a unique asset – real estate lawyers use appropriate due diligence to discover the true value.

Real property is a unique asset which may be an important part of the value of a transaction, and matters discoverable with appropriate due diligence can significantly impact that value. Real estate lawyers appreciate and recognize the importance of due diligence. As such, real estate lawyers understand the timing issues and will not permit the real property portion to delay the transaction. Real estate lawyers understand the consequences associated with the failure to plan and manage due diligence inspections and achieve resolutions. They are well versed in all aspects of a real property transaction and will ensure significant lead time for all real property matters.

1.We help make the firm good. And that benefits everyone!

1/06/2014 18359714