key issues in documenting the y10-15 fee sale the sellers perspective allen lynch nixon peabody llp...
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KEY ISSUES IN DOCUMENTING THE Y10-15 FEE SALE
— The Seller’s Perspective —
Allen Lynch
Nixon Peabody LLP
100 Summer Street
Boston, MA 02110
617-345-1235
Preliminary Matters
• Portfolio sales & different investors
• Implications of packaging purchase access with equity/debt
• Engagement/alignment of all partners
• Who drives the bus?
• Who takes the pen?
• Know your LURA, Reg. Agreement, Loan Agreement
The Property
• What’s in?
• What’s out?
Feasibility Period
• Seller’s materials
• Buyer’s reports
• LURA
Approvals Period
• Seller’s Approvals
– LP Consent
– Investment Committee
– Lender issues
• Buyer’s Approvals
– State Agency
– Municipality
– HUD
Title and Survey
• Title – before, not after
• Permitted Exceptions
Warranties
• Not a substitute or supplement for DD
• 10 year hold
• Limitations
– “Actual knowledge” of “Designated Person”
– “Acquired knowledge” of Buyer
– Survival period
– Basket & cap
– Disclaimer (“as is”/no re-syndication or subsidy guaranty*)
Tax Credits
• Buyer covenants
– Compliance
– CC annual compliance certification,8609s
• Procurement of recapture bond
– Who obtains
– Who pays premium
– Who indemnifies (the “rich Uncle”)
– Who fixes noncompliance
– When
Tax Credits II
• Buyer indemnity of Seller
– Breach of compliance/reporting covenants
– Post-transfer noncompliance
– Cancellation of bond
– Cause Guarantor to deliver separate indemnity at closing
• Seller indemnity of Buyer
– Pre-transfer noncompliance
Tax Credits III
• Buyer transfer within compliance period
– Risk
– Notice
– Effect on indemnities
– Consent to change of management agent
Pre-Closing Obligations
• Maintain normal course ops
• Stabilized assets: vacant units rent ready or allowance ($500)
Conditions to Close of Escrow I
• Seller
– Approvals
– Recapture Bond issued (or available for issuance but for payment of premium)
– Experienced management agent
– No default under “Related Agreements”
– No Buyer default
Conditions to Close of Escrow II
• Buyer
– Approvals
– No Seller default
– Issuance of title policy
– No default under “Related Agreements”
Conditions to Close of Escrow III
• Deposits fully refundable for all unsatisfied conditions (e.g., Approvals)?
• Extension of Closing for Approvals?
– Additional extension deposit (refundable vs. hard)
– Additional purchase price
Close of Escrow
• Buyer delivers recapture indemnity agreement signed by SPE and the guarantor of the surety (the “rich Uncle”)
– They are not parties to the PSA
Default and Remedies
• 15 day notice and cure period (excluding title)
• Seller default – Buyer gets (i) specific performance or (ii) refund of deposit and if intentional default documented third party costs capped at X. That’s it.
• Buyer default – Seller gets deposit and Buyer’s third party reports. That’s it.
• Cross default – default under one = all
Why Read the “Boilerplate”?
• Assignment – Only to SPE majority controlled/owned by Buyer. Buyer remains obligated. No flipping.
• Limited liability – principals excluded.
KEY ISSUES IN DOCUMENTING THE Y10-15 FEE SALE
The Seller’s Perspective
Allen Lynch
Nixon Peabody LLP
100 Summer Street
Boston, MA 02110
617-345-1235