Commercial real estate closings are complicated and often stressful. Taking a laid-back approach to a commercial purchase or sale will only end in disaster. However, knowing the key steps can ensure you do everything correctly, protecting yourself and your business.
We’ve put together a Florida commercial real estate closing checklist to help guide sellers and buyers. It is advised that you consult a Florida commercial real estate attorney for professional advice relevant to your circumstances and business. Our lawyers offer free consultations and welcome you to make a call today.
The Key Stages of a Commercial Real Estate Closing
1. Letter of Intent
A letter of intent (LOI) is the first step in a commercial real estate purchase or sale. There is no legal obligation to send one in Florida, but it is advised.
LOIs should cover the following terms:
- States who the parties involved are.
- Details where the property is located.
- States the agreed purchase price.
- Any other must-have financial terms, such as deposits.
- Other important material terms.
It may also be relevant to add:
- Information discovered by the buyer during the due diligence process.
- Financing contingency clauses.
- Is the LOI legally binding? This can be important for confidential information. If agreed, it must be stated explicitly.
2. Drafting the Purchase and Sale Agreement
The drafting of a commercial purchase agreement can come in many forms, covering locations from retail spaces and warehouses to undeveloped land or sports venues.
These documents are usually prepared by the seller and sent to the buyer’s team for review. All terms are negotiable.
If your LOI was legally binding, the following purchase agreement must comply with the pre-agreed provisions.
Each type of commercial real estate purchase agreement will have extensive details to meet, which your Florida real estate lawyer can provide.
Common considerations for a commercial purchase and sale agreement include;
- The terms agreed in the LOI.
- Property details and descriptions, including any personal property, also being transferred.
- Warranties, Covenants and Representations, restrictions regarding the seller’s operation of the property after closing, residual liability and much more.
- Any agreed inspection periods.
- Agreements regarding paying closing costs and associated expenses.
You should always consult a professional Florida real estate attorney to ensure you are not left liable for missing important criteria.
3. Due Diligence Review
Due diligence reviews are a critical step in a commercial real estate closing checklist.
This step requires the buyer to discover and reveal information about the property’s condition to see if they really want to proceed with the deal. It is effectively a commercial version of a residential property inspection.
This will include studying the structure of the building, the condition of the infrastructure, a survey of the property, a title review, environmental liabilities analysis and operating and financial review.
As agreed in the purchase agreement, there is an inspection period. Once this expires, the buyer’s deposit is no longer refundable (unless negotiated).
4. Closing Documents
Commercial real estate closing in Florida requires attorneys to help exchange and record legally binding documents.
The required documents will vary depending on the type of commercial real estate deal. Most sales include the following documents:
- A Bill of Sale
- A FIRPTA Certificate
- Leases that transfer any of the seller’s rights
- Notices to tenants and vendors
- Service Contracts that transfer the seller’s rights to any service contracts
- Tenant estoppel certificates.
- Transfer deed
Reputable law firms can prepare closing statements stating payment details, debits and credits. This may also include the payment figures, prorations for taxes and rents, escrow or title fees, legal fees, lender fees and title insurance premiums.
You should always receive a professional real estate attorney review before finalizing your commercial real estate purchase or sale.
Purchase agreements may also detail escrow instructions.
These instructions and requirements guide the closing, ensuring both parties are ready to conclude the transaction. They include:
- Which documents are required?
- What each party must deposit into the escrow.
- The conditions must be met before the deal can be closed.
- The order in which documents will be recorded.
6. Post Closing
Once the conditions are met and the parties are paid, the title agent or lawyer will send the buyer their new Owner’s title insurance policy and the Lender’s title insurance policy to the lender.
Florida Commercial Real Estate Closing Checklist
Here is an essential A-Z commercial real estate closing checklist:
Almost all real estate transactions contain ALTA surveys. These surveys reveal unknown or undisclosed conditions such as easements, lot lines and setbacks.
Agreements Assigned to Buyer or Terminated at the Close of Escrow
More often than not, commercial property is subject to existing service agreements. These agreements should be assigned to the buyer, or terminated. As a buyer, you should know these before the commercial real estate closing is completed.
Appraisals should be performed to determine the fair market value of the property.
Bill of Sale
A bill of sale document details the transfer of personal property.
Building Physical Inspection
This type of inspection examines the structure of the building and its systems. It’s an essential step before the closing is complete that ensures your business doesn’t purchase a property set for disaster.
Closing statements provide a breakdown of all costs and monetary transfers in the real estate transaction.
Commercial real estate transactions do not have the same consumer protections as in residential deals.
Never assume that seller disclosure is obligatory. Review your PSA to check the agreed disclosures have been provided.
When taking a commercial property title, you risk environmental liability regardless of fault.
However, if you have investigated the property, you can gain defense as an ‘innocent purchaser’. Buyers may need to conduct a ‘Phase I’ investigation and, if necessary, perform a ‘Phase II’.
Buyers may need to prove the seller is not a foreign resident or entity. If the seller is, the buyer will be required to withhold the purchase process to pay for taxes. They will also be liable for withholding outstanding amounts they failed to withhold.
Buyers can usually trust a seller’s FIRPTA affidavit.
Fully Executed Purchase and Sale Agreement
A PSA is a document that varies with each deal, it must be reviewed thoroughly to ensure the conditions of each agreement are satisfied.
Hazardous Material Survey
Local environmental inspection companies can review the building for materials that may contain hazardous materials such as lead and asbestos. Safely resolving these issues can be expensive.
You should contact your insurance broker to obtain property and liability insurance. Lenders will usually require both to be maintained during the loan term.
Natural Hazard Disclosure
Hazard disclosure details if the property is at risk of natural disasters such as floods, dam failures, earthquakes and wildfires. If so, the insurance may be very expensive.
Preliminary Title Report
Preliminary title reports are acquired once escrow has been opened. They detail information about the property, including how the title is held and any exceptions to the title such as liens.
This report informs title insurance.
Tenant Estoppel Certificates
Current tenants can give buyers these certificates to confirm the lease terms and show that there are no active defaults.
Termite inspections from local pest companies can reveal existing termite issues and conditions that may lead to future termite infestation.
Personal property in a commercial real estate transaction can be searched through the secretary of State to reveal any encumbrances.
You must understand which utilities service the commercial property – such as water, gas, electric, cable, and sewer.
Septic tank and well problems can be a nightmare and very costly to resolve. If the commercial property you’re buying has a well or septic, an inspection may be worthwhile.
Zoning confirms the use of the property meets the local zoning regulations. If the user doesn’t, the consequences can be severe.
Contact a Commercial Real Estate Attorney in Florida
If you’re buying a property for your business, our Florida real estate attorneys can help protect your and your rights, so your dream purchase goes smoothly.
We’ll also guide you through the process, ensuring you’re set up for a thriving future at your new location.
If you’re purchasing property or land in St Petersburg, Florida or Riverview, Florida, contact us today. Our St Petersburg & Riverview real estate attorneys have extensive experience that can help you through these tricky moments, reviewing your contract, advising you on the next steps to secure your transaction, and successfully finalizing the purchase of your new commercial property.