OPTIONS IN REAL ESTATE: SCOPE, MODIFICATIONS, PURCHASE, RIGHTS OF FIRST REFUSAL, AND FIRST OFFER First Run Broadcast: June 8, 2017 1:00 p.m. ET/12:00 p.m. CT/11:00 a.m. MT/10:00 a.m. PT (60 minutes) Options in commercial real estate transactions give the optioner (the party buying the option) more time more time to do due diligence, obtain financing and any necessary governmental approvals, and consider whether the transaction is truly viable. The optionee (the party whose property is subject to the option) loses the right to sell the property to a third party for the duration of the option but earns a fee for doing so. In a world of complex and risky commercial real estate transactions, where time is often of the essence and risk is high, options allow developers, investors and others an effective mechanism to buy time and take a wait-and-seeapproach. This program will provide you with a practical guide to drafting essential provisions of options in commercial real estate transactions, including avoiding costly traps. Types of option contracts in real estate transactions Economics of real estate option contracts, including the purchase price of the underlying property and market volatility Key terms duration of exclusive period, fees, and extensions and relationship to market conditions Nature of exclusive period access to property, restrictions on marketing, cooperation in obtaining permits Role of contingencies financing, regulatory, market variables Differences between rights of first refusal and options Speaker: Manuel A. Fernandez is partner in the Miami office of Kasowitz Benson Torres & Friedman, LLP, where he represents clients in an extensive array of real estate matters, including real estate acquisitions and dispositions, commercial leasing matters, distressed real estate transactions, real estate financings and the formation of real estate joint ventures. He also represents hedge funds, pension funds, and other real estate opportunity funds in connection with joint ventures. Mr. Fernandez received his B.A., cum laude, from the University of Miami and his J.D., magna cum laude, from the University of Miami School of Law.
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OPTIONS IN REAL ESTATE: SCOPE, MODIFICATIONS, PURCHASE, RIGHTS OF FIRST REFUSAL, AND FIRST OFFER Manuel A. Fernandez Kasowitz Benson Torres & Friedman, LLP Miami (o) (786) 587-1051 mfernandez@kasowitz.com Richard Goldberg Ballard Spahr, LLP - Philadelphia (o) (215) 864-8730 (m) (215) 837-8401 goldbergr@ballardspahr.com 1. Options Generally a. Generally speaking, a real estate option is a contract pursuant to which the owner of a specific property (the optionor) grants a another part (the optionee) the exclusive right to purchase the property. b. Basic Requirements i. Independent Consideration ii. When is keeping your options open a bad idea? c. Distinction between an option and a right of first offer or right of first refusal i. Real estate option that requires the optionee who receives an offer for property subject to an option to grant the optionor the right to buy the option property before it is sold to another purchaser ii. What effect does failure of optionor to exercise right to purchase the property have on the rights of the optionor in the future? Does it depend on the language of the option contract? What if the option contract is silent? Concerns about unreasonable restraints on alienation 2. Special Types of Options a. Options for acquisition of development property i. How does this benefit the optionee? ii. How does the optionee protect itself against risk of the property not being developed? b. Options to participate in joint venture transactions
c. Options to purchase back property deeded to a municipality in connection with a sale leaseback transaction 3. Protecting the Option a. Recordation of option agreement b. Title insurance c. Recognizing bankruptcy issues