Download - Contract Drafting 2010-03-03
Contract Drafting2010-03-03
University of Houston Law CenterSpring 2010D. C. Toedt III
Panelists from Schlanger Silver and Thompson Knight
Louis Silver
Alfred Meyerson
Roshni Patel
Thad Armstrong
Objective of this class session
High-level overview of typical transaction Survey of documents to be drafted Selected legal- and business points NOT:
Equip students to do real-estate deals “solo”Provide contract forms (but see samples at
http://www.OnTechnologyContracts.com/uhspring2010/ from SEC’s EDGAR database)
Review: Signatures
NORTH BY EAST ENTERTAINMENT, LTD., by Northeast Platinum, LLC, its general partner, by: /s/ John Auletta John Auletta, sole member of Northeast Platinum, LLC
Hypothetical transaction: sell a shopping center
The “players”
The obvious ones: Seller, Buyer Other important players:
Lender(s)Anchor tenant(s)Other tenantsLocal government(s)Quasi-governmental entities
Letters of intent
Letters of intent Potentially dangerous Stmt. of present intention on basic points
Price; timeline; earnest money; brokers; etc.Conditions precedent – due diligence, etc.Lock-up?Expenses of negotiation
Expressly ID binding vs. non-binding terms Confidentiality? Press release? One for each phase of deal?
Agreement of Purchase and Sale
The goal: Closing
Swap deed for $, prom. note, etc. Old-style closings vs. modern logistics
Signatures – how delivered?Consideration - dittoEscrow
Closing instruction letter – brings everything together
Some key agreement components1. Timeline2. Covenants and/or closing conditions
Review: Damages and/or walk-away right
3. Reps & warrantiesReview: Distinction between the twoAnything not apparent from due diligence = rep
4. Disclosure schedule – exceptions to R&WNomenclature: “Schedule 4.7(a)”
Exhibit formsWarranty deed – Tex. Prop. CodePromissory note?Deed of trust?Estoppel certificate (signed by tenant)?Attornment / subordination / nondisturbance
agreement (between lender & tenant)?Bring-down certificate?
Some key agreement components
Timeline: Critical dates in agreement Closing date
Might be tied to conditions being fulfilled, e.g., receipt of govt. licenses / approvals
Drop-dead date Title & survey review period – how long? Inspection period – how long? When does earnest money become ‘at risk’?
Conditions to obligation-to-close Pre-closing & closing covenants satisfied
Operational covenantsBring money / bring deed
Seller’s reps and warranties correct (materiality qualifier?)Good title, etc. – due diligence“Bring-down” certificate?
Estoppel certificates, etc., from current tenants
Money transfer: Mechanics
Wire transfer? Promissory note?
Covenants
Deliver deed, money, etc. Buyer consent required for pre-closing:
Amend. or modif. of existing leasesNew leaseNew title encumbrance
Indemnities Environmental – how far back does it go?Others?
Covenants
Maintain insurance coverage Risk of loss
Seller maintains risk of loss till the closingWhat happens if the place burns down before
closing?
Due diligence
Title search/policy & related D/D
Purpose – why? Searcher – who? Timing – when? Admin. mechanics – how, who pays? Issues to look for – what?
Drafting issues: Title
Rep & warrantiesSeller has good title
Closing conditionsNo problems with title search
CovenantsDeliver signed gen. warr. deed at closing Indemnities?
Survey of the property
5Ws – who, when, why, where, what Whom to hire? Lender desires Issues to review include:
Flood plainSoil studiesPlatting
Drafting issues: Survey
Rep & warranties Closing conditions
No (unscheduled) encroachments Covenants
Indemnities?
Existing leases Rent roll Anchor tenant, smaller tenants Lease agreements
Conflicting use- and exclusivity provisionsCo-tenancy issuesTermination rights
Drafting issues: Leases
Rep & warrantiesNo tenants in default (except as scheduled)No disputes, pending terminations, etc.
Estoppel certificates Covenants Closing conditions
Commercial Leases: Top 10 Things 10: Permitted, prohibited uses 9: Notice and opportunity to cure 8: Consents and approvals not to be
unreasonably withheld, conditioned or delayed.
7: Beware of relocation rights 6: Obligations should be conditions and
covenants
Commercial Leases: Top 10 Things 5: Remedies – exclusive? Cumulative?
Self-help? 4: Future needs 3: Options! (Renewal, expansion, termin.) 2: Beginning, end of obligations 1: Consistency!
Environmental due-diligence CERCLA, amended by
Brownfields Law EPA fact sheets – useful
summaries Current owner or
operator liability for clean-up costs
Exposure potential for lenders
Strict liability, but … Gowanus Canal, Brooklyn
“All appropriate inquiries” due-diligence defense EPA fact sheet Hire an ‘environmental professional’
Licensed, experienced ASTM standards (American Society for
Testing Materials) Shelf life for investigations
Drafting issues: Environmental
Rep & warranties Closing conditions Contingency plans
Indemnities
Other questions?
Homework
See the Web site (www.OnTechnologyContracts.com/UHSpring2010)
Last question for panelists
(With apologies to Wait Wait Don’t Tell Me)