DUE DILIGENCE BEST PRACTICES IN REAL ESTATE TRANSACTIONS

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1 DUE DILIGENCE BEST PRACTICES IN REAL ESTATE TRANSACTIONS Janet Jackim, Esq. Sacks Tierney, P.A. April 18, 2018 The Eye Institute at Midwestern University

2 DUE DILIGENCE BEST PRACTICES IN REAL ESTATE TRANSACTIONS Why best practices?

3 Improve the investment experience Improve and maximize the investment Minimize risks and errors Provide more and better services A democratic practice for small, medium and large investors, owners and users

4 A continuum of best practices, where the earliest practices feed into the closing of the transaction o Pre-contract execution o Post-contract execution: the due diligence, free look, investigation period o Closing o Post-closing

5 Pre-Contract Best Practices: Letter of Intent Typical provisions Atypical provisions Drafting or reviewing an LOI Not binding. Really?

6 Early Best Practices: Buying Entity Why an entity, not an individual? o Personal liability o One entity per property? o And/or its assignees Establishing an entity: o Licenses o Formation documents (Articles, Partnership Agreement, tax ID#)

7 Essentials of Due Diligence: Getting Organized Who: o Team of professionals (real estate agent, surveyor, architect, engineer, attorney, CPA, escrow/title) o Project manager? Disclosures Timing: o Due dates and diaries o Checklists

8 Essentials of Due Diligence: Reviews Title Review: o Encumbrances, liens, taxes and other exceptions o Letter of objections and title cleanup o For lease transactions? Survey: o Upgraded title policy o Certification as a warranty

9 Essentials of Due Diligence: Records o Historical records o Physical, engineering and mechanical infrastructures o Maintenance history and pre-closing fix-its o Warranties on equipment and fixtures o Who owns the furniture, fixtures and equipment?

10 Essentials of Due Diligence: Contracts o Maintenance and management o CC&R s, access agreements, easements, use restrictions, development agreements o Hidden assets (construction bonds, escrows, municipal reimbursements) o Leases and related documents (estoppels, SNDA s)

11 The Essentials of Due Diligence: Approvals o Proof of franchise (sales) tax payments o Operating licenses (public pool, restaurant, gas) o Pre-closing zoning verification letter o Research plans for development, redevelopment, historic designation, pending special use permits (MMJ facility), construction

12 Essentials of Due Diligence: Disputes o Need to know litigation attitude of key players o Impending insolvency or bankruptcy o PACER records ( o Superior Court records ( /index.asp)

13 Essentials of Due Diligence: Contaminants o Strict liability in chain of title o Phase I and Phase II all appropriate inquiries as safe harbor o Indemnifications o What to do if contamination is found?

14 Essentials of Due Diligence: Organize Learn, Know and Disclose Make a Good Investment Be Happy

15 Thank you! Janet E. Jackim Janet is a former Vice President, Real Estate, and Assistant General Counsel at The Circle K Corporation during its high growth and bankruptcy stages. During four decades as a commercial real estate and business attorney, Janet has represented investors, developers, lenders, landlords, and tenants in commercial real estate and other business transactions. The Best Lawyers in America honoree has completed more than $1 billion in mergers and acquisitions (sales price) of large and small businesses. Today she specializes in representing cannabis industry businesses. Jackim@sackstierney.com