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Legal Elements of the Development Process Acquiring Real Property October 13, 2016 Presented by: Kenneth Gordon, Esq. Any forms or documents included in these materials should not be considered as models for any particular matter, nor should they be relied on as being applicable to any specific legal matter. DUE DILIGENCE Scope of Due Diligence • Financial, land use—zoning and planning, physical, environmental, operational, and legal due diligence. Due Diligence Provisions in a Contract of Sale • Should there be one — free option? – Bidding process — no due diligence – Cost Issues — investment without risk of not getting the deal – Seller concern of tainting property if Purchaser backs out • Time Period Due Diligence Provisions in a Contract of Sale (cont’d) • Scope of Termination Right – e.g., Follow up on environmental, structural or zoning issues. – For any reason. • Access Rights and Physical testing – Interference with Tenants – Non-disclosure of results and confidentiality – Damage and repair Due Diligence Provisions in a Contract of Sale (cont’d) • Contact with Other Parties and Governmental Agencies—informal polling • Indemnification TITLE INSURANCE AND SURVEY Concept of Record Title • County Recorder's office — copies of recorded documents; use of ACRIS system in NYC for searching all recorded documents affecting the Property (back to 60's only). • Using title search to identify documents affecting title. • Race/Notice — concept of bona fide purchaser for value and deemed notice of matters of record Title Commitment and Title Policy • What a title policy insures and doesn't insure – Does insure: defects in title, liens and encumbrances other than those excepted in the policy. – Doesn't insure: against the insured's own acts, lack of consideration, presence of hazardous substances, zoning and land use. • Significance of the Effective Date of a Policy What is a Survey? • Importance of legal description • Identification of location of easements, covenants and restrictions and other rights— look at recorded SNDAs and memos of leases Title Insurance Provisions in a Contract of Sale • Concept of Permitted Exceptions • Obligation of Seller to Cure Exceptions to Title – Monetary Cure — liens, mortgages, etc.. – Voluntary liens – Concept of inability to convey and not a default — something missed in title search • Departmental Violations (DOB, health, fire, C of O) and positions of a Seller and Purchaser Selecting the Title Insurance Company • • • • financial creditworthiness; rates; cooperation on exceptions; tickets REPRESENTATIONS AND WARRANTIES Representations and Warranties • Types of Representations and Warranties – See PSA –NJ Form and NYC Form – Reps you typically don't see — physical condition of improvements, existence of hazardous materials, compliance with laws, zoning or C of O. • Effect of a Pre-Closing Breach • Concept of obligations Surviving the Closing or Merging in a Deed • Effect of a Post-Closing Breach CONDITIONS TO CLOSING Conditions to Closing • Difference between a Condition and a Covenant • Consequences of a Failure of Condition • Failure of Condition vs. a Default DEVELOPMENT APPROVALS Development Approvals • Inclusion of Approvals in Sale — see sample. If going to get these provisions, Buyer is going to pay for them. • Sale subject to obtaining Approvals — Definition of Approvals—see Exhibit to NJ Form. • Financing contingencies; types available for purchase of land, pre-development expenses and construction expenses. COVENANTS Covenants • Types of Covenants during Executory Period • Payment of Transaction Expenses CLOSING Closing • Mechanics of a Closing — Concept of escrow, who goes first, etc... • Closing Deliveries • Concept of Time being of the Essence • Adjustments CASUALTY AND CONDEMNATION Casualty and Condemnation • Relevance to a Development Site • Ways to define Material Casualty - $$, time, leases. • Application of Insurance Proceeds • Ways to define Material Condemnation DEFAULT AND REMEDIES Default and Remedies • Purchaser Default and Seller Remedies • Seller Default and Purchaser Remedies