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<title>conducting due diligence – HARP – On This. . .</title>
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<description>A Commercial Real Estate and Business Thought-board</description>
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<title>COOL PROJECTS – A Love Affair Revisited</title>
<link>http://harp-onthis.com/cool-projects-real-estate/</link>
<comments>http://harp-onthis.com/cool-projects-real-estate/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Wed, 19 May 2021 22:28:00 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Business]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[adaptive reuse]]></category>
<category><![CDATA[business]]></category>
<category><![CDATA[Chicago]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[cool projects]]></category>
<category><![CDATA[creative use]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[economic redevelopment]]></category>
<category><![CDATA[ICSC RECon 2015]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[redevelopment]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[urban infill]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1173</guid>
<description><![CDATA[Adaptive Reuse Of Underutilized Real Estate Cool Projects – A Love Affair Revisited We are entering a new frontier for adaptive re-use. The worldwide COVID-19 pandemic has left the urban commercial landscape in tatters. Shuttered vacant commercial space is commonplace […]]]></description>
<content:encoded><![CDATA[
<h1 class="wp-block-heading"><mark style="background-color:rgba(0, 0, 0, 0)" class="has-inline-color has-vivid-cyan-blue-color"><strong>Adaptive Reuse Of Underutilized Real Estate </strong></mark></h1>
<h1 class="wp-block-heading"><mark style="background-color:rgba(0, 0, 0, 0)" class="has-inline-color has-vivid-cyan-blue-color"><strong><em>Cool Projects</em> – A Love Affair Revisited</strong></mark></h1>
<p>We are entering a new frontier for adaptive re-use. The worldwide COVID-19 pandemic has left the urban commercial landscape in tatters. Shuttered vacant commercial space is commonplace throughout cities and towns. Doors and windows are boarded-up in shopping districts and entertainment districts that were thriving as recently as February 2020. Some have become barely recognizable. </p>
<p><strong>Looking to the Future</strong></p>
<div class="wp-block-image">
<figure class="alignleft size-large is-resized"><img data-recalc-dims="1" fetchpriority="high" decoding="async" data-attachment-id="1927" data-permalink="http://harp-onthis.com/cool-projects-real-estate/old-post-office/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?fit=1200%2C630" data-orig-size="1200,630" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="old-post-office" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?fit=300%2C158" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?fit=1024%2C538" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?resize=400%2C210" alt="old post office" class="wp-image-1927" width="400" height="210" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?resize=1024%2C538 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?resize=300%2C158 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?resize=768%2C403 768w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/old-post-office.jpg?w=1200 1200w" sizes="(max-width: 400px) 100vw, 400px" /></figure></div>
<p>What is to become of this vast inventory of vacant retail space, shuttered restaurants, empty hotels and office buildings, abandoned shopping malls, cavernous and empty theaters, stranded travel destinations, and more? Who will have the vision and courage to adapt and redevelop these properties into newly viable economic jewels? And when? </p>
<p>Make no mistake; it will happen. And it’s likely to happen much more quickly than you think. </p>
<p>While many are just beginning to peak their cautious heads out from under their COVID blankets, <em>value-add developers</em> are assembling to scoop-up valuable assets to be reimagined and repositioned for economic glory. If you believe the residential real estate market is hot, hold onto your collective hats. There are enormous profits to be made in commercial real estate and new business. These COVID-depressed sectors have struggled during the COVID shutdown, but unless the government blows it with short-sighted regulation and foolish tax policy, substantial economic revitalization is about to commence. Jobs, business opportunities, community-desired services and amenities, and great economic rewards are on the horizon. The ingenuity and creativity of value-add developers and the entrepreneurs they enable, coupled with vast amounts of available capital, are about to be unleashed in a torrent. </p>
<p>Pent-up demand is a powerful force. We are about to witness the creative power of visionary value-add developers as they reimagine and reinvent vacant and underutilized commercial space and turn it into some remarkably C<em>oo</em>l Projects. I can’t wait!</p>
<h1 class="wp-block-heading"><mark style="background-color:rgba(0, 0, 0, 0)" class="has-inline-color has-vivid-cyan-blue-color"><strong>C<em>OO</em>L PROJECTS – Real Estate Projects I <em>Love</em> to Work On. </strong></mark></h1>
<p>I love cool real estate projects. Cool projects are why I became a lawyer. Cool projects are why I come to the office each day. Cool real estate projects are why I did not become an astrophysicist (well, one reason – although, that might have been cool too). Cool projects are the reason I live, smile, dance, breath, scour the earth for new deals, jump for joy.</p>
<p>And by “c<em>oo</em>l”, I don’t mean in a thermal sense – but rather in a “<em>this project is so cool</em>” sense. I am referring to real estate projects that are awesome. Real estate projects that are fun. Real estate projects that make you say “<em>Wow – what a cool project!</em>”</p>
<div class="wp-block-image">
<figure class="alignleft size-large is-resized"><img data-recalc-dims="1" decoding="async" data-attachment-id="1527" data-permalink="http://harp-onthis.com/harp-photo-sept-2019-less-than-2mb/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/09/Harp-Photo-Sept.-2019-less-than-2MB.png?fit=360%2C402" data-orig-size="360,402" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="Harp Photo – Sept. 2019 less than 2MB" data-image-description="" data-image-caption="<p>R. Kymn Harp</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/09/Harp-Photo-Sept.-2019-less-than-2MB.png?fit=269%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/09/Harp-Photo-Sept.-2019-less-than-2MB.png?fit=360%2C402" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/09/Harp-Photo-Sept.-2019-less-than-2MB.png?resize=162%2C179" alt="" class="wp-image-1527" width="162" height="179"/><figcaption class="wp-element-caption">R. Kymn Harp</figcaption></figure></div>
<p>Cool projects don’t need to be costly projects in major urban centers – although those can be cool too. I’m talking about projects that are creative. Projects that require vision and imagination. Projects that take something mundane and turn it into something special.</p>
<p>Some people think I only like huge projects. To be honest, I do like huge projects, but largely because the huge projects I have worked on also happened to be cool projects.</p>
<p>Redevelopment of the commercial portions of Marina City in downtown Chicago was a cool project. Ground-up development of Sears Centre Arena in Hoffman Estates, Illinois was a cool project. Work on various mixed-use projects around the Midwest and upstate New York have been cool projects. But so has been the much smaller development of an 8,000 square foot microbrewery in the historic Motor Row District of Chicago using TIF financing; development of countless restaurant and entertainment venues throughout the Midwest; conversion of a multi-story industrial building into a high-tech office center; conversion of an outdated office building into a stylish, luxury hotel; adaptive reuse of outdated retail strip centers, bank buildings, city and suburban office buildings, bowling alleys, warehouses, industrial buildings, gas stations, and various small to medium sized special purpose buildings into modern, fully functional jewels – reinvented to provide much needed retail and service amenities for local neighborhoods and communities. It is not the size of the project that makes it cool – or the cost – it is the concept, imagination and creative challenge involved that makes the difference. At least for me.</p>
<h2 class="wp-block-heading"><span style="color: #008080;"><span class="has-inline-color has-vivid-cyan-blue-color"><strong>Cool Projects Test</strong></span></span></h2>
<p>Here’s a test [call it the “<span style="color: #000000;"><em>Cool Projects Test</em></span>”, if you will]:</p>
<p>Which of the following projects is more likely to end up on Kymn Harp’s list of <em>cool projects</em>?</p>
<span id="more-1173"></span>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 1:</span></em></span></h5>
<p>a. Developing a stand-alone bank building on a commerical outlot?</p>
<p><em>Or</em></p>
<p>b. Converting an historic firehouse into an upscale restaurant and wine bar with take-out bakery?</p>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 2:</span></em></span></h5>
<p>a. Developing a 196 unit apartment complex on a large vacant lot?</p>
<p><em>Or</em></p>
<p>b. Redeveloping a former 3-story Main Street department store into a mixed-use project with first floor restaurants, sidewalk cafés, first floor retail, a side street residential lobby, apartments on the 2nd and 3rd floors, and a rooftop sundeck and fitness center?</p>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 3:</span></em></span></h5>
<p>a. Developing a stand-alone strip shopping center?</p>
<p><em>Or</em></p>
<p>b. Developing retail shops within the underutilized first floor and lower level pedway serving an existing hotel/convention center?</p>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 4:</span></em></span></h5>
<p>a. Developing a multiplex movie theater?</p>
<p><em>Or</em></p>
<p>b. Converting a former multiplex movie theater into a multi-tenant, specialty entertainment center with intimate live music venues, restaurants, an art gallery, and ethnic-focused shopping boutiques to serve a growing ethnic population in the surrounding community?</p>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 5:</span></em></span></h5>
<p>a. Developing a national chain pharmacy on a corner lot?</p>
<p><em>Or</em></p>
<p>b. Redeveloping a former church as a music and theatrical venue with a restaurant, music store and gift shop?</p>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 6:</span></em></span></h5>
<p>a. Developing a new suburban office tower?</p>
<p><em>Or</em></p>
<p>b. Coordinating economic redevelopment of a suburban downtown business district to transform a stagnant center of town into an affluent Millennial-friendly live-work-play lifestyle environment?</p>
<h5 class="wp-block-heading"><span style="color: #008080;"><em><span class="has-inline-color has-vivid-cyan-blue-color">Project Choice No. 7:</span></em></span></h5>
<p>a. Developing an industrial/office park?</p>
<p><em>Or</em></p>
<p>b. Developing a multi-user sports and entertainment complex with restaurants, retail and parking?</p>
<p>Which Project Choices listed above qualify as “<em>cool projects</em>”? Not everyone will agree. There is no absolute, right answer. And don’t get me wrong, if a client walked through my door with any of these projects, I would be happy to jump on-board. But, the truth is that – in a perfect world, if given a choice – I would choose Project Choice “<span style="text-decoration: underline;">b</span>” every time.</p>
<p>Why? There is just something exhilarating about taking tired, underutilized or functionally obsolete properties and reinventing them as revitalized developments that make users say: “<em>WOW – what a cool project!</em>”</p>
<p>Cool projects require a lot of planning, legal insight, and specialized due diligence to make sure a successful transformation can be achieved, but the value-added turnaround can be long-lasting and well worth the effort.</p>
<p>I am always on the hunt for cool projects. I enjoy working with all my clients, but my favorite clients are investors, developers and business owners with creative vision, who can imagine the future, and make it happen.</p>
<p>Not every project I work on is a <em>cool project</em>. As a real estate lawyer, I work on the deals that clients bring me. Some projects are just good investments waiting to be built. I’m fine with that. There is nothing wrong with building projects that just serve a need. I endorse the concept, and am always glad to help, so give me a call. I am at your service.</p>
<p><em>But</em> . . ., for sure if you are contemplating a <em>cool project</em> – please stop whatever else you are doing, pick up your phone and call me. My direct line is <strong><span class="has-inline-color has-vivid-cyan-blue-color">312-456-0378</span></strong>. Let’s talk. My partners and I can help you get it done – and, I assure you, we can each have a blast doing it.</p>
<p>There is no thrill quite like the thrill of like-minds working together in sync, with skill and creativity, to move a cool project forward, from concept to completion. I would love to be part of your team.</p>
<p><em>Thanks for listening.</em></p>
<p>Be c<em>oo</em>l. </p>
<p> Be creative.</p>
<p> Call me.</p>
<p>Thanks,<br /><em>Kymn</em></p>
]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">1173</post-id> </item>
<item>
<title>Your Real Estate Contract – Two Points to Consider</title>
<link>http://harp-onthis.com/1406-2/</link>
<comments>http://harp-onthis.com/1406-2/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Wed, 25 Apr 2018 19:08:10 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[loans]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1406</guid>
<description><![CDATA[Two Things You Need to Know As my readers know, I often represent real estate investors. When I draft a real estate contract I strive to make each provision absolutely clear in its meaning, and try to have it serve […]]]></description>
<content:encoded><![CDATA[
<h1 class="wp-block-heading">Two Things You Need to Know</h1>
<div class="wp-block-image size-medium wp-image-1145">
<figure class="alignleft"><img data-recalc-dims="1" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="" class="wp-image-1145" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="(max-width: 199px) 100vw, 199px" /><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p>As my readers know, I often represent real estate investors. When I draft a real estate contract I strive to make each provision absolutely clear in its meaning, and try to have it serve as a workable road map to closing. Occasionally a client will draft a real estate contract on its own (or have a broker draft it), and sign it without my review or input. The client will then send it to me “<em>to close the transaction</em>“. Though I counsel clients that this can be a remarkably risky practice, some clients . . . being clients . . . do as they wish and ignore my advice. Such is life.</p>
<p>When faced with closing a transaction governed by a real estate contract I did not have a hand in preparing, I do my best. It is usually not a complete disaster, but there are often misunderstandings because of provisions that are not entirely clear.</p>
<p></p>
<p></p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1766" data-permalink="http://harp-onthis.com/1406-2/real-estate-agent-delivering-sample-homes-to-customers/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="real-estate-agent-Delivering-sample-homes-to-customers" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?resize=400%2C266" alt="real estate agent Delivering sample homes to customers" class="wp-image-1766" width="400" height="266" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>There are also situations where a provision in a real estate contract may be legally sufficient, but the seller and/or its attorney simply don’t understand the actual meaning of the provision. With a clearer provision the misunderstanding could be avoided, but the legal ramifications of certain provisions still are what they are, rather that what some imagine them to be. The following are two examples I have run into in the last week that I believe deserve comment and explanation:</p>
<p><strong>NO MORTGAGE CONTINGENCY: </strong> Contrary to the understanding by some Seller’s attorneys and their clients, the fact that a real estate contract does not include a mortgage contingency – and may even expressly state that the transaction is <em>not contingent</em> upon the Buyer obtaining a mortgage – does <strong><em>not</em></strong> mean that the Buyer is not obtaining a loan and using mortgage financing. It simply means that the Buyer’s obligation to proceed to closing under the real estate contract is not <em>contingent</em> upon the Buyer obtaining a mortgage loan.</p>
<p>Many investor Buyers have strong relationships with their lender. They know what their lender requires, and know that the property they are acquiring will qualify as collateral for a mortgage loan from their lender. Consequently, they do not make obtaining a mortgage a <em>contingency</em> to closing in the real estate contract. Be that as it may, the Buyer may still obtain a mortgage loan, and may fund the property purchase using loan proceeds.</p>
<p>This is the practical equivalent to the situation where a real estate contract does contain a mortgage contingency, but the contingency has been satisfied because the Buyer has been approved for a mortgage loan. <em>At that point</em> the contingency expires and the contract is no longer subject to a mortgage contingency. The Buyer will still be closing using its lender and the proceeds of its mortgage loan. Probably no one disputes that.</p>
<p>Likewise, in a real estate contract where there is no mortgage contingency from the beginning, the absence of a mortgage contingency does not, without more, imply at all that there will be no mortgage lender. If the parties intend to provide that a contract is to be a cash transaction with no lender, that should be expressly provided in the real estate contract. Otherwise, the mere absence of a <em>mortgage contingency</em> does not mean there will be no lender – it<i> </i>simply means the Buyer is taking the legal and financial risk that a mortgage will be obtained.</p>
<p>2. <strong>AN “AS IS” CLAUSE DOES NOT MEAN NO INSPECTION</strong>: As with the absence of a mortgage contingency clause, as discussed in point 1 above, there seems to be some confusion about what an “AS IS” provision in a real estate contract means.</p>
<p>It has recently been suggested to me by Seller’s counsel that since the Buyer is purchasing property in “<em>AS IS”</em> condition that there is no need for the Buyer to have an inspection period with the right to inspect the condition of the property. To the contrary, where a Buyer has agreed to acquire property in <em>AS IS</em> condition, it is absolutely vital for the Buyer to have an opportunity to inspect the property, with the right to terminate the transaction if the condition of the property is materially worse than the Buyer expected. The <em>AS IS</em> provision in a real estate contract simply means that the Buyer does not expect the Seller to make any repairs to the property, or expect the Seller to provide closing credits for defective conditions in the property, and that the Buyer will not come back to the Buyer after closing seeking recourse for undisclosed defects.</p>
<p>Having a provision in an real estate contract providing for an inspection period during which the Buyer can thoroughly inspect the property and terminate the contract within that period if the property is physically deficient is not at all inconsistent with a provision that the Buyer is agreeing to acquire the property in <em>AS IS</em> condition. The need to inspect is a matter of due diligence for the Buyer. If the Buyer inspects the property (or fails to inspect the property) and does not exercise its right to terminate within the inspection period provided in the real estate contract, <em>then</em> the Buyer is bound to close regardless of the condition of the property – with the possible exception of additional damage occurring to the property after the contract date, or at least after expiration of the inspection period.</p>
<div class="wp-block-image">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="109" data-attachment-id="283" data-permalink="http://harp-onthis.com/about/rsp_logofull_2pms/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":""}" data-image-title="RSP_LogoFull_2PMS" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=963%2C350" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=300%2C109" alt="" class="wp-image-283" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=500%2C181 500w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></figure></div>
<p>These are simple points, but they are misunderstood more frequently than one would hope or expect. To avoid needless misunderstandings, careful and meticulous drafting is a solution. But still . . . this is not rocket science.</p>
<p>Thanks for listening. . .</p>
<p>Kymn</p>
]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">1406</post-id> </item>
<item>
<title>COMMERCIAL REAL ESTATE BOOT CAMP</title>
<link>http://harp-onthis.com/commercial-real-estate-boot-camp/</link>
<comments>http://harp-onthis.com/commercial-real-estate-boot-camp/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Fri, 13 Apr 2018 20:35:15 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[Chicago]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[IICLE]]></category>
<category><![CDATA[Illinois]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1392</guid>
<description><![CDATA[NEW – COMMERCIAL REAL ESTATE BOOT CAMP- April 24, 2018- presented by the Illinois Institute for Continuing Legal Education I’m pleased to tell you about a terrific CLE program I’ll be speaking at and moderating: the IICLE® Commercial Real Estate Boot […]]]></description>
<content:encoded><![CDATA[
<h2 class="wp-block-heading">NEW – COMMERCIAL REAL ESTATE BOOT CAMP- April 24, 2018- presented by the Illinois Institute for Continuing Legal Education</h2>
<div class="wp-block-image">
<figure class="alignleft"><a href="http://www.iicle.com/download/crebc18_brochure.pdf"><img data-recalc-dims="1" loading="lazy" decoding="async" width="60" height="77" data-attachment-id="740" data-permalink="http://harp-onthis.com/commercial-real-estate-boot-camp/image004/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image004.png?fit=60%2C77" data-orig-size="60,77" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":""}" data-image-title="image004" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image004.png?fit=60%2C77" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image004.png?fit=60%2C77" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image004.png?resize=60%2C77" alt="" class="wp-image-740"/></a></figure></div>
<p>I’m pleased to tell you about a terrific CLE program I’ll be speaking at and moderating: the <strong>IICLE® Commercial Real Estate Boot Camp</strong>, which will be held on <strong>Tuesday, April 24, 2018, at the One North Wacker Conference Center (UBS TOWER) in Chicago </strong>. A <strong>SPRINGFIELD SIMULCAST and LIVE WEBCAST</strong> will also be available.</p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" width="1000" height="667" data-attachment-id="1773" data-permalink="http://harp-onthis.com/commercial-real-estate-boot-camp/portraitofnewbusinessownersbyemptyofficewindow/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2017 Monkey Business Images\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Portrait,Of,New,Business,Owners,By,Empty,Office,Window","orientation":"0"}" data-image-title="Portrait,Of,New,Business,Owners,By,Empty,Office,Window" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?resize=1000%2C667" alt="portrait of new business owners by empty office window" class="wp-image-1773" style="width:400px;height:267px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 1000px) 100vw, 1000px" /></figure></div>
<p>This program is a “boot camp” for commercial real estate transactions, intended as intensive, fast-paced, basic training. The goal is to provide practical knowledge fundamental to everyday commercial real estate transactions practice, including basic forms. This course is designed for (i) lawyers with one to seven years of experience handling commercial real estate transactions; and (ii) lawyers at any level of experience seeking to learn the fundamentals of everyday commercial real estate transactions.</p>
<p>In this program you will learn about (a) client intake and engagement letters; (b) drafting/reviewing a letter of intent to purchase; (c) drafting the purchase and sale agreement; (d) obtaining and reviewing a suitable ALTA survey; (e) commercial title insurance with typically required commercial endorsements; (f) three common types of escrows; (g) types of deeds typical to commercial real estate transactions; (h) required governmental notices; (i) due diligence in preparing for closing; (j) documenting party authority; (k) the basic opinion of borrowers’ counsel; and (l) common closing issues.</p>
<p>You can view the full e-brochure here: <a href="http://www.iicle.com/download/crebc18_brochure.pdf" target="_blank" rel="noopener">PROGRAM BROCHURE</a></p>
<p>Check out the full agenda (the program provides 6 hours of CLE, including 1 hour of Professional Responsibility) and register now at http://www.iicle.com/crebc18 or call IICLE® at 800-252-8062.</p>
<p>As you may know, there is a shortage of commercial real estate attorneys with mid-level experience. Not because attorneys are not interested, but because during the commercial real estate crash that began with the collapse of Lehman Bros. on September 15, 2008, and the following <em>Great Recession </em>with its lingering effects on the commercial real estate market until just the past two or three years, there were few commercial real estate transactions upon which new attorneys could gain experience. Times have changed. Commercial real estate practice is booming. We need more attorneys who actually know what they’re doing. This Commercial Real Estate Boot Camp is a great start!</p>
<div class="wp-block-image size-medium wp-image-1145">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="" class="wp-image-1145" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p>I hope to see you on April 24th!</p>
<div class="wp-block-image">
<figure class="alignleft"><a href="http://www.iicle.com/download/crebc18_brochure.pdf"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="39" data-attachment-id="738" data-permalink="http://harp-onthis.com/commercial-real-estate-boot-camp/image002/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?fit=693%2C92" data-orig-size="693,92" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":""}" data-image-title="IICLE banner" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?fit=300%2C39" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?fit=693%2C92" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?resize=300%2C39" alt="" class="wp-image-738" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?resize=300%2C39 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?resize=500%2C66 500w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?w=693 693w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">1392</post-id> </item>
<item>
<title>THE CLIENT CONUNDRUM</title>
<link>http://harp-onthis.com/the-client-conundrum/</link>
<comments>http://harp-onthis.com/the-client-conundrum/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 06 Nov 2017 18:55:30 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Asset Protection]]></category>
<category><![CDATA[Business]]></category>
<category><![CDATA[client]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[Illinois]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1376</guid>
<description><![CDATA[A mistake lawyers make is treating all clients the same. It’s a mistake shared by other professions as well. They’re not all the same. The issues clients face, and the solutions they deserve, are as varied as life itself. With […]]]></description>
<content:encoded><![CDATA[
<p>A mistake lawyers make is treating all clients the same. It’s a mistake shared by other professions as well. They’re not all the same. The issues clients face, and the solutions they deserve, are as varied as life itself.</p>
<div class="wp-block-image size-medium wp-image-1145">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="" class="wp-image-1145" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p>With the rise of technology and the commoditization of legal services, nuance can be lost. Precise solutions to particular problems may be neglected while cookie-cutter boilerplate is offered as a cheap substitute. Not that all boilerplate and technology is bad – they can provide huge benefits when applied correctly. But just as a mass-produced size 9 leather dress shoe may be ideal for some, it is of little comfort or use to an athlete with a size 10 foot.</p>
<p>Automation is a cost-saver, no doubt. But is it a reasonable substitute for thoughtful analysis and tailor-made solutions to client specific problems?</p>
<p></p>
<p></p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1810" data-permalink="http://harp-onthis.com/the-client-conundrum/malematurecaucasianceobusinessmanleaderwithdiversecoworkersteam/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2022 Ground Picture\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Male,Mature,Caucasian,Ceo,Businessman,Leader,With,Diverse,Coworkers,Team,","orientation":"1"}" data-image-title="Male,Mature,Caucasian,Ceo,Businessman,Leader,With,Diverse,Coworkers,Team," data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?resize=400%2C267" alt="executive managers group at meeting" class="wp-image-1810" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>There may be areas of life where commoditized legal services represent a reasonable tradeoff. Perhaps consumers engaged in everyday transactions are adequately-served by inexpensive one-size fits all solutions. Even a consumer buying a home – often touted as the largest single transaction most consumers will make in their lifetime – may be well-served by inexpensive boilerplate solutions on most occasions. In the world of consumer transactions and consumer finance, there is a protective overlay of consumer protection laws and oversight that will often fill in the gaps left by a one-size fits all approach.</p>
<p>But what about most commercial transactions? Buying or starting a business? Investing in commercial or industrial real estate? Raising capital from third parties? Entering into a partnership agreement or limited liability company operating agreement for a commercial venture where someone else is in control, and uses or controls your money – or where you use or control someone else’s money? Are these circumstances where one-size solutions and documentation make sense?</p>
<p>How do you protect yourself if something goes wrong? Experience shows something can always go wrong. And when things go wrong in a commercial transaction, expensive lawsuits often follow.</p>
<p>Business people consider themselves to be intelligent, reasonable beings. When they invest in a business or real estate project they expect it will succeed. If they thought otherwise, they would not make the investment. That would be foolish, and they know for certain that they’re not foolish. If it fails, they conclude it had be someone’s fault – but it certainly wasn’t theirs. They must have been duped. Information must have been withheld. They must have been lied to or cheated. The other party must at least be incompetent if not downright crooked.</p>
<p>You may laugh, but that’s often how it happens. You may be one hundred percent competent and above-board. You may have understood and discussed the risks to the point where you are certain that your partners or investors understand the risks as well – but if you’re the promoter of the failed business or investment, or you’re in charge of making management decisions – you should expect to find yourself staring down the business end of a double-barreled lawsuit claiming the loss is your fault – even if you lost money as well, and even if nothing you did or could have done resulted in the loss. Changing economic circumstances, business and lifestyle trends, and other factors far beyond your control may be the reason for the loss, but you will be blamed. How do to protect yourself?</p>
<p>Suppose you’re on the other side. What if you’re the investor or partner asked to invest? What do you look for? What do you require? How do you protect yourself?</p>
<p>Clients are not all the same. Commercial transactions are not all the same. The risks and benefits of each investment and business venture are not all the same. The solutions and documentation of each transaction cannot, therefore, be all the same.</p>
<p>If clients are engaged in serious business, serious attention is required. Both the attorney and the client need to understand this. Once a deal goes bad, it’s too late to go back and redo what should have been done at the outset.</p>
<p>Will doing it right up front cost more?</p>
<p>Probably.</p>
<p>Will it be worth it if things go poorly?</p>
<p>You bet.</p>
<p>Should clients buy a size 9 shoe for their size 10 foot?</p>
<p><em>Thanks for listening. . .</em></p>
<p><em>Kymn </em></p>
]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">1376</post-id> </item>
<item>
<title>NEW BOOK – Illinois Commercial Real Estate</title>
<link>http://harp-onthis.com/1338-2/</link>
<comments>http://harp-onthis.com/1338-2/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 17 Oct 2016 14:41:53 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[adaptive reuse]]></category>
<category><![CDATA[asset protection]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[Chicago]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[lenders]]></category>
<category><![CDATA[lending]]></category>
<category><![CDATA[loan documentation]]></category>
<category><![CDATA[project entitlement]]></category>
<category><![CDATA[public-private partnership]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[site entitlement]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[urban infill]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1338</guid>
<description><![CDATA[I’m happy to announce that the website for my new book, Illinois Commercial Real Estate is now live. Visit www.Illinois-CRE.com for a book excerpt. Illinois Commercial Real Estate, Due Diligence to Closing, with Checklists, is intended as a practical handbook […]]]></description>
<content:encoded><![CDATA[<p>I’m happy to announce that the website for my new book, <strong><em>Illinois Commercial Real Estate</em></strong> is now live. Visit www.Illinois-CRE.com for a book excerpt.</p>
<p><a href="http://www.Illinois-CRE.com"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1331" data-permalink="http://harp-onthis.com/illinois-commercial-real-estate-book-cover/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?fit=734%2C1087" data-orig-size="734,1087" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="illinois-commercial-real-estate-book-cover" data-image-description="" data-image-caption="<p>www.illinois-cre.com</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?fit=203%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?fit=691%2C1024" class="alignleft size-medium wp-image-1331" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?resize=203%2C300" alt="illinois-commercial-real-estate-book-cover" width="203" height="300" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?resize=203%2C300 203w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?resize=691%2C1024 691w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?w=734 734w" sizes="auto, (max-width: 203px) 100vw, 203px" /></a><strong><em>Illinois Commercial Real Estate, Due Diligence to Closing, with Checklists</em></strong>, is intended as a practical handbook for investors, developers, brokers, lenders, attorneys and others interested in commercial real estate projects in Illinois. This book zeros-in on commercial real estate due diligence, and walks the reader through the due diligence process, from conception to closing, with a focus on making sure the commercial real estate project functions as intended after closing. Checklists are provided as an aid to commercial real estate professionals to assist on evaluation of the property and the transaction on the path toward successful closing. As people in the real estate industry understand, if the deal doesn’t close, it doesn’t count.</p>
<p>I’d like to extend <strong>Special Thanks</strong> to:</p>
<p>My <em>clients</em>, whose passion for creative commercial development I share;</p>
<p>My<em> partners and staff</em> at <a href="http://www.rsplaw.com">Robbins, Salomon and Patt, Ltd.,</a> who work with me tirelessly to earn our client’s business every day.</p>
<p><a href="http://www.rsplaw.com/catherine-cooke/">Catherine A. Cooke</a> and<a href="http://www.rsplaw.com/emily-c-kaminski/"> Emily C. Kaminski,</a> attorneys at Robbins, Salomon & Patt, Ltd. who provided legal research, advice, counseling, and technical editing;</p>
<p><a href="http://www.rsplaw.com/james-mainzer/">James M. Mainzer</a>, tax partner at Robbins, Salomon & Patt, Ltd., for his insights and assistance on tax matters;</p>
<p>The editing staff at the<a href="http://www.iicle.com/"><em> Illinois Institute for Continuing Legal Education</em></a>, for editing early versions of chapters 11, 12, 25, 27 and 28, which were first published in <a href="http://www.iicle.com/">IICLE</a> Practice Handbooks;</p>
<p>Dale V. Weaver, Illinois licensed surveyor, who was kind enough to convert my rough draft drawings into the diagrams included at chapter 25;</p>
<p>. . . and, of course, my friend and valuable resource, Linda Day Harrison, founder of <a href="http://thebrokerlist.com/">theBrokerList</a>, for her ongoing encouragement and support.</p>
<p>If you are buying, developing, financing, selling, leasing or otherwise dealing with commercial real estate in Illinois, I hope you will find <strong><em>Illinois Commercial Real Estate, Due Diligence to Closing, with Checklists</em></strong><em> </em>to be a useful resource.</p>
<p>ENJOY!!!</p>
<p>R. Kymn Harp</p>
<p><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1041" data-permalink="http://harp-onthis.com/illinois-llcs-the-asset-protection-advantage/rsp_logohd-3/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"}" data-image-title="RSP_LogoHD (3)" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" class="alignleft size-medium wp-image-1041" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109" alt="RSP_LogoHD (3)" width="300" height="109" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></p>
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<item>
<title>Due Diligence Basics – Commercial Real Estate</title>
<link>http://harp-onthis.com/due-diligence-basics-cre/</link>
<comments>http://harp-onthis.com/due-diligence-basics-cre/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 16 Jun 2016 21:07:05 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1306</guid>
<description><![CDATA[Due diligence is essential when investing in, developing or financing commercial real estate. You must know the right questions to ask, and where to find the answers. The object is not simply to get to closing, but to assure that […]]]></description>
<content:encoded><![CDATA[
<p>Due diligence is essential when investing in, developing or financing commercial real estate. You must know the right questions to ask, and where to find the answers. The object is not simply to get to closing, but to assure that the project will function as intended after closing.</p>
<div class="wp-block-image size-medium wp-image-1145">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="R. Kymn Harp Robbins, Salomon & Patt, Ltd." class="wp-image-1145" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p>Due diligence is a standard of conduct. It is the amount of diligent inquiry due under the circumstances of your particular transaction. It requires that you determine, confirm and answer “yes” to every question required to be answered in the affirmative, and that you determine, confirm and answer “no” to every question required to be answered in the negative, for your project to proceed to closing and function as intended after closing.</p>
<p>In commercial real estate transactions, there are two layers of due diligence:</p>
<ol class="wp-block-list">
<li>Transaction due diligence; and</li>
<li>Property due diligence.</li>
</ol>
<p></p>
<p></p>
<h2 class="wp-block-heading"><span style="color: #000000;">TRANSACTION DUE DILIGENCE</span></h2>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1812" data-permalink="http://harp-onthis.com/due-diligence-basics-cre/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?resize=400%2C267" alt="financial innovation technology develop smart e commerce service and growth digital transaction" class="wp-image-1812" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/financial-innovation-technology-develop-smart-e-commerce-service-and-growth-digital-transaction.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>In any commercial transaction, transaction due diligence requires that we ask and know the answers to fundamental questions in seven particular areas of concern. These areas of concern include the six elements of every story-line, plus authority of the parties to act. Transaction due diligence requires that you determine, confirm and know the answers to each of the following:</p>
<ol class="wp-block-list">
<li> <em>Who</em> are the parties to the transaction?</li>
</ol>
<p>a. Seller</p>
<p>b. Buyer</p>
<p>c. Lender</p>
<p>d. Tenants</p>
<p>e. Other</p>
<p>2. <em>What property</em> is included?</p>
<p>a. Real estate</p>
<p>b. Personal property</p>
<p>c. Franchise agreements or rights</p>
<p>d. Other</p>
<p>3. <em>Where</em> is the property located?</p>
<p>4. <em>Why</em> is the property being acquired? – Intended use?</p>
<p>5. <em>When</em> must it Close? And other critical dates?</p>
<p>a. Due diligence period</p>
<p>b. Title delivery deadline</p>
<p>c. Survey delivery deadline</p>
<p>d. Financing deadlines</p>
<p>e. Section 1031 identification period and replacement property acquisition deadlines</p>
<p>f. Other critical dates</p>
<p>6. <em>How</em> will the transaction be structured?</p>
<p>a. Sale</p>
<p>b. Lease</p>
<p>c. Section 1031 exchange</p>
<p>d. Seller financing</p>
<p>e. Other transaction structure issues</p>
<p>7. <em>By what authority</em> are the parties acting?</p>
<p>a. Board approval, if necessary</p>
<p>b. Shareholder approval, if necessary</p>
<p>c. Governmental approvals, if necessary</p>
<p>d. Manager authority under LLC Operating Agreement</p>
<p>e. LLC member consent, if necessary</p>
<p>f. Landlord consent, if necessary</p>
<p>g. Lender consent, if necessary</p>
<p>h. Any other required consents or approvals or other sources of authority</p>
<p>When the “what” of Transaction Due Diligence is commercial or industrial real estate, the next step is to conduct an investigation of the property using all appropriate due diligence. Property due diligence is describes below.</p>
<h2 class="wp-block-heading"><span style="color: #000000;">PROPERTY DUE DILIGENCE</span></h2>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1813" data-permalink="http://harp-onthis.com/due-diligence-basics-cre/cardboard-house-icon-and/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/cardboard-house-icon-and.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="cardboard-house-icon-and" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/cardboard-house-icon-and.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/cardboard-house-icon-and.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/cardboard-house-icon-and.jpg?resize=400%2C267" alt="cardboard house icon and due diligence" class="wp-image-1813" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/cardboard-house-icon-and.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/cardboard-house-icon-and.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/cardboard-house-icon-and.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>Property due diligence has four additional areas of concern. As discussed below, the four major areas of concern for property due diligence are <em>market demand, access, use</em> and<em> finances</em>. All of the questions concerning the property that need to be asked and answered when investing in, developing or financing commercial or industrial real estate fall within one or more of these four major areas of concern.</p>
<p>Property due diligence requires that you determine, confirm and know the answers to each of the following:</p>
<p> 1. <em>Market Demand</em></p>
<p>a. How will the property be used?</p>
<p>b. Who are the intended users?</p>
<p>c. Is there a need – and more importantly, will there be a need at the time the project is completed?</p>
<p>2. <em>Access</em></p>
<p>a. How will users get to the property?</p>
<p>b. Are there adequate traffic controls, stoplights, stop signs, etc.?</p>
<p>c. Adequate drives for customers and deliveries?</p>
<p>d. Sufficient roadway stacking room at nearby intersections?</p>
<p>e. Lawful curb-cuts?</p>
<p>f. Full access vs. right-turn only?</p>
<p>g. Adequate parking for business needs (which may be more than zoning requirements)?</p>
<p>h. ADA compliant/handicap accessible?</p>
<p>i. Any other access requirements or impediments?</p>
<p>3. <em>Use</em></p>
<p>a. Any private land use controls/restrictions on use?</p>
<p>b. Proper zoning?</p>
<p>c. Sufficient parking as required by zoning?</p>
<p>d. Sufficient occupancy capacity?</p>
<p>e. Adequate utility service?</p>
<p>f. If buyer is acquiring the property for its own use, are there any existing tenants or users that must be terminated or removed? Can they be lawfully removed?</p>
<p>g. Environmental issues? (which may be as much a finance issue as a use issue)</p>
<p>h. Other use requirements or issues?</p>
<p>4. <em>Finances</em></p>
<p>a. Financing</p>
<p>i. Appraised value?</p>
<p>ii. Loan to value – equity requirement?</p>
<p>iii. Terms of financing?</p>
<p>iv. Lender required due diligence expenses?</p>
<p>v. Lease subordination required?</p>
<p>x. Subordination Non-Disturbance and Attornment (SNDA) Agreements?</p>
<p>y. Tenant Estoppel Certificates?</p>
<p>vi. Other lender requirements?</p>
<p>b. Financial Metrics</p>
<p>i. Real estate taxes and special assessments?</p>
<p>ii. Rehab/repair costs?</p>
<p>iii. User fees and recapture costs?</p>
<p>iv. Environmental remediation costs?</p>
<p>v. Leases?</p>
<p>1. Lease income?</p>
<p>2. Security deposits?</p>
<p>3. Rental abatement?</p>
<p>4. CAM and operating expense reconciliations?</p>
<p>5. Landlord obligations to Tenants for build-out, etc.?</p>
<p>vi. Other financial benefits and burdens affecting the property?</p>
<h2 class="wp-block-heading">RESOURCES</h2>
<p>Many of the white papers and posts on this blog delve more deeply into due diligence issues and concerns. You may find particularly useful my post <a href="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/">Due Diligence Checklists: for Commercial Real Estate Transactions</a>.</p>
<p>Should you need assistance, we have a number of attorneys at <a href="http://www.rsplaw.com">Robbins Salomon & Patt, Ltd</a>. who are experienced commercial real estate practitioners and can help. Do not hesitate to reach out to us. We are always looking for new clients with interesting or challenging projects.</p>
<p>Enjoy!</p>
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<title>NEW: ALTA Land Title Survey Standards</title>
<link>http://harp-onthis.com/new-alta-land-title-survey-standards/</link>
<comments>http://harp-onthis.com/new-alta-land-title-survey-standards/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 21 Jan 2016 00:06:26 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1259</guid>
<description><![CDATA[NEW ALTA LAND TITLE SURVEY STANDARDS effective February 23, 2016. UPDATE:  Effective February 23, 2016, new minimum standard detail requirements for ALTA Land Title Surveys went into effect, replacing the previously existing 2011 Minimum Standard Detail Requirements for ALTA/ACSM Land […]]]></description>
<content:encoded><![CDATA[
<h1 class="wp-block-heading"><span style="color: #2492ab;">NEW ALTA LAND TITLE SURVEY STANDARDS effective February 23, 2016.</span></h1>
<p>UPDATE: Effective February 23, 2016, new minimum standard detail requirements for ALTA Land Title Surveys went into effect, replacing the previously existing 2011 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys.</p>
<p>Note that the National Society of Professional Surveyors (NSPS) is the legal successor organization to the American Congress of Surveying and Mapping (ACSM). Accordingly, the new survey standards will be cited as the “<em>2016 Minimum Standard Detail requirements for ALTA/NSPS Land Title Surveys.</em>“</p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" width="1000" height="667" data-attachment-id="1940" data-permalink="http://harp-onthis.com/new-alta-land-title-survey-standards/surveyorengineerwithpartnermakingmeasureonthefield/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2012 Tom Wang\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Surveyor,Engineer,With,Partner,Making,Measure,On,The,Field","orientation":"0"}" data-image-title="Surveyor,Engineer,With,Partner,Making,Measure,On,The,Field" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?resize=1000%2C667" alt="surveyor engineer with partner making measure on the field" class="wp-image-1940" style="width:400px;height:267px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 1000px) 100vw, 1000px" /></figure></div>
<p>Several substantive changes have been made in the updated 2016 land title survey standards. A comparison of the 2016 standards to the previous 2011 standards is highlighted on the Red-lined version showing the changes made. Among the notable changes are changes to the <span style="text-decoration: underline;">Table A</span> list of <em>Optional Survey Responsibilities and Specifications. </em>The modifications to <span style="text-decoration: underline;">Table A</span> are largely a result of the 2016 Land Title Survey standards making certain requirements mandatory instead of optional. Additional changes involve reassigned responsibilities (or at least a clarification of responsibilities) for obtaining certain information for use by surveyors in preparing a 2016 ALTA/NSPS Land Title Survey.</p>
<h2 class="wp-block-heading"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1041" data-permalink="http://harp-onthis.com/illinois-llcs-the-asset-protection-advantage/rsp_logohd-3/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"}" data-image-title="RSP_LogoHD (3)" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" class="alignleft size-medium wp-image-1041" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109" alt="RSP_LogoHD (3)" width="300" height="109" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /><span style="color: #2492ab;">Update Purchase Agreements to Require Surveys compliant with NEW 2016 ALTA Land Title Survey Standards</span></h2>
<p>Especially for commercial or industrial real estate purchase agreements (and financing commitments) requiring ALTA Surveys prepared after February 23, 2016, be sure to contractually require that they be prepared in accordance the the 2016 Minimum Standard Detail requirements for ALTA/NSPS Land Title Surveys. Be sure, also, to modify your existing contracts as they pertain to the <em><span style="text-decoration: underline;">Table A</span> Optional Survey Responsibilities and Specifications</em> to address the new <span style="text-decoration: underline;">Table A</span> instead of the version associated with the former 2011 standards.</p>
<p>Purchasers should check with their lenders, and with the title insurance company engaged to insure title, to be certain everyone is on the same page, and that all parties understand their respective responsibilities for obtaining documents and information necessary for use by the Surveyor. Lenders and their counsel should do likewise.</p>
<p>2016 should be an interesting year for commercial real estate. Best of luck for a prosperous year!</p>
<p>Thanks,</p>
<p>Kymn</p>
]]></content:encoded>
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<title>Keys to Closing A Commercial Real Estate Transaction</title>
<link>http://harp-onthis.com/keys-to-closing-a-commercial-real-estate-transaction/</link>
<comments>http://harp-onthis.com/keys-to-closing-a-commercial-real-estate-transaction/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Sat, 17 Oct 2015 12:10:09 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[closing]]></category>
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<category><![CDATA[development]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[due diliigence]]></category>
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<category><![CDATA[property]]></category>
<category><![CDATA[purchase]]></category>
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<guid isPermaLink="false">http://harp-onthis.com/?p=202</guid>
<description><![CDATA[Commercial Real Estate Closings Anyone who thinks closing a commercial real estate transaction is a clean, easy, stress-free undertaking has never closed a commercial real estate transaction. Expect the unexpected, and be prepared to deal with it. I’ve been closing […]]]></description>
<content:encoded><![CDATA[
<h1 class="wp-block-heading">Commercial Real Estate Closings</h1>
<p>Anyone who thinks closing a commercial real estate transaction is a clean, easy, stress-free undertaking has never closed a commercial real estate transaction. Expect the unexpected, and be prepared to deal with it.</p>
<div class="wp-block-image">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="256" height="300" data-attachment-id="1321" data-permalink="http://harp-onthis.com/keys-to-closing-a-commercial-real-estate-transaction/harp-author-photo-pid-732110/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/07/Harp-Author-Photo-PID-732110.jpg?fit=1025%2C1200" data-orig-size="1025,1200" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"1468856809","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="Harp Author Photo PID 732110" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/07/Harp-Author-Photo-PID-732110.jpg?fit=256%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/07/Harp-Author-Photo-PID-732110.jpg?fit=875%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/07/Harp-Author-Photo-PID-732110.jpg?resize=256%2C300" alt="Harp Author Photo PID 732110" class="wp-image-1321" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/07/Harp-Author-Photo-PID-732110.jpg?resize=256%2C300 256w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/07/Harp-Author-Photo-PID-732110.jpg?resize=768%2C899 768w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/07/Harp-Author-Photo-PID-732110.jpg?resize=875%2C1024 875w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/07/Harp-Author-Photo-PID-732110.jpg?w=1025 1025w" sizes="auto, (max-width: 256px) 100vw, 256px" /></figure></div>
<p>I’ve been closing commercial real estate transactions for over 35 years. I grew up in the commercial real estate business.</p>
<p>My father was a “<em>land guy</em>”. He assembled land, put in infrastructure and sold it for a profit. His mantra:<em> “Buy by the acre, sell by the square foot.”</em> From an early age, he drilled into my head the need to <em>“be a deal maker; not a deal breaker.”</em> This was always coupled with the admonition: “<em>If the deal doesn’t close, no one is happy</em>.” His theory was that attorneys sometimes “<em>kill tough deals</em>” simply because they don’t want to be blamed if something goes wrong.</p>
<p>A key point to understand is that commercial real estate Closings do not “<em>just happen</em>”; they are made to happen. There is a time-proven method for successfully Closing commercial real estate transactions. That method requires adherence to the four KEYS TO CLOSING outlined below:</p>
<span id="more-202"></span>
<h1 class="has-text-align-center wp-block-heading">KEYS TO CLOSING</h1>
<h2 class="wp-block-heading">1. HAVE A PLAN:</h2>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1822" data-permalink="http://harp-onthis.com/keys-to-closing-a-commercial-real-estate-transaction/signingacontract-clientandbrokeragentleaseagreementsuccessful/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/client-and-broker-agent-lease-agreement.jpg?fit=1000%2C668" data-orig-size="1000,668" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2023 Laddawan punna\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Signing,A,Contract.,Client,And,Broker,Agent,,Lease,Agreement,,Successful","orientation":"1"}" data-image-title="Signing,A,Contract.,Client,And,Broker,Agent,,Lease,Agreement,,Successful" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/client-and-broker-agent-lease-agreement.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/client-and-broker-agent-lease-agreement.jpg?fit=1000%2C668" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/client-and-broker-agent-lease-agreement.jpg?resize=400%2C265" alt="client and broker agent, lease agreement" class="wp-image-1822" width="400" height="265" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/client-and-broker-agent-lease-agreement.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/client-and-broker-agent-lease-agreement.jpg?zoom=2&resize=400%2C265 800w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>This sounds obvious, but it is remarkable how many times no specific Plan for Closing is developed. It is not a sufficient Plan to merely say: “<em>I like a particular piece of property; I want to own it.</em>” That is not a Plan. That may be a goal, but that is not a Plan.</p>
<p>A Plan requires a clear and detailed vision of what, specifically, you want to accomplish, and how you intend to accomplish it. For instance, if the objective is to acquire a large warehouse/light manufacturing facility with the intent to convert it to a mixed use development with first floor retail, a multi-deck parking garage and upper level condominiums or apartments, the transaction Plan must include all steps necessary to get from where you are today to where you need to be to fulfill your objective. If the intent, instead, is to demolish the building and build a strip shopping center, the Plan will require a different approach. If the intent is to simply continue to use the facility for warehousing and light manufacturing, a Plan is still required, but it may be substantially less complex.</p>
<p>In each case, developing the transaction Plan should begin when the transaction is first conceived and should focus on the requirements for successfully Closing upon conditions that will achieve the Plan objective. The Plan must guide contract negotiations, so that the Purchase Agreement reflects the Plan and the steps necessary for Closing and post-Closing use. If Plan implementation requires particular zoning requirements, or creation of easements, or termination of party wall rights, or confirmation of structural elements of a building, or availability of utilities, or availability of municipal entitlements, or environmental remediation and regulatory clearance, or other identifiable requirements, the Plan and the Purchase Agreement must address those issues and include those requirements as conditions to Closing.</p>
<p>If it is unclear at the time of negotiating and entering into the Purchase Agreement whether all necessary conditions exists, the Plan must include a suitable period to conduct a focused and diligent investigation of all issues material to fulfilling the Plan. Not only must the Plan include a period for investigation, the investigation must actually take place with all due diligence.</p>
<p>NOTE: The term is “<em>Due Diligence</em>”; not “<em>do diligence</em>”. The amount of diligence required in conducting the investigation is the amount of diligence required under the circumstances of the transaction to answer in the affirmative all questions that must be answered “yes”, and to answer in the negative all questions that must be answered “no”. The transaction Plan will help focus attention on what these questions are. (<em>See</em>: <a title="DUE DILIGENCE CHECKLISTS for Commercial Real Estate Transactions" href="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/" target="_blank" rel="noopener">Due Diligence: Checklists for Commercial Real Estate Transactions</a>.)</p>
<h2 class="wp-block-heading"> 2. ASSESS AND UNDERSTAND THE ISSUES:</h2>
<p>Closely connected to the importance of having a Plan is the importance of understanding all significant issues that may arise in implementing the Plan. Some issues may represent obstacles, while others represent opportunities. One of the greatest causes of transaction failure is a lack of understanding of the issues or how to resolve them in a way that furthers the Plan.</p>
<p>Various risk shifting techniques are available and useful to address and mitigate transaction risks. Among them is title insurance with appropriate use of available commercial endorsements. In addressing potential risk shifting opportunities related to real estate title concerns, understanding the difference between a “real property law issue” vs. a “title insurance risk issue” is critical. Experienced commercial real estate counsel familiar with available commercial endorsements can often overcome what sometimes appear to be insurmountable title obstacles through creative draftsmanship and the assistance of a knowledgeable title underwriter.</p>
<p>Beyond title issues, there are numerous other transaction issues likely to arise as a commercial real estate transaction proceeds toward Closing. With commercial real estate, negotiations seldom end with execution of the Purchase Agreement.</p>
<p>New and unexpected issues often arise on the path toward Closing that require creative problem-solving and further negotiation. Sometimes these issues arise as a result of facts learned during the buyer’s due diligence investigation. Other times they arise because independent third-parties necessary to the transaction have interests adverse to, or at least different from, the interests of the seller, buyer or buyer’s</p>
<p>lender. When obstacles arise, tailor-made solutions are often required to accommodate the needs of all concerned parties so the transaction can proceed to Closing. To appropriately tailor a solution, you have to understand the issue and its impact on the legitimate needs of those affected.</p>
<h2 class="wp-block-heading">3. RECOGNIZE AND OVERCOME THIRD PARTY INERTIA:</h2>
<p>A major source of frustration, delay and, sometimes, failure of commercial real estate transactions results from what I refer to as “<em>third-party inertia</em>”. Recognize that the Closing deadlines important to transaction participants are often meaningless to unrelated third parties whose participation and cooperation is vital to moving the transaction forward. Chief among third-party dawdlers are governmental agencies, but the culprit may be any third-party vendor or other third-party not controlled by the buyer or seller. For them, the transaction is often “just another file” on their already cluttered desk.</p>
<p>Experienced commercial real estate counsel is often in the best position to recognize inordinate delay by third parties and can often cajole recalcitrant third parties into action with an appropriately timed telephone call. Often, experienced commercial real estate counsel will have developed relationships with necessary vendors and third parties through prior transactions, and can use those established relationships to expedite the transaction at hand. Most importantly, however, experienced commercial real estate counsel is able to recognize when undue delay is occurring and push for a timely response when appropriate. Third party vendors are human (they claim) and typically respond to timely appeals for action. It is the old cliché at work: “<em>The squeaky wheel gets the oil</em>”. Care must be taken, however, to tactfully apply pressure only when necessary and appropriate. Repeated requests or demands for action when inappropriate to the circumstance runs the risk of alienating a necessary party and adding to delay instead of eliminating it. Once again, human nature at work. Experienced commercial real estate counsel will often understand when to apply pressure and when to lay off.</p>
<h2 class="wp-block-heading">4. PREPARE FOR THE CLOSING FRENZY:</h2>
<p>Like it or not, controlled chaos leading up to Closing is the norm rather than the exception for commercial real estate transactions. It occurs because of the necessity of relying on independent third parties, the necessity of providing certifications and showings dated in close proximity to Closing, and because new issues often arise at or near Closing as a consequence of facts and information discovered through the continual exercise of due diligence on the path toward Closing.</p>
<p>Whether dealing with third-party lessees, lenders, appraisers, local planning, zoning or taxing authorities, public or quasi-public utilities, project surveyors, environmental consultants, title insurance companies, adjoining property owners, insurance companies, structural engineers, state or local departments of transportation, or other necessary third-party vendors or participants, it will often be the case that you must wait for them to react within their own time-frame to enable the Closing to proceed. The transaction is seldom as important to them as it is to the buyer and seller.</p>
<p>To the casual observer, building-in additional lead-time to allow for stragglers and dawdlers to act may seem to be an appropriate solution. The practical reality, however, is that many tasks must be completed within a narrow window of time just prior to Closing.</p>
<p>As much as one may wish to eliminate the last-minute rush in the days just before Closing, in many instances it is just not possible. Many documents and “<em>showings</em>”, such as UCC searches, surveys, water department certifications, governmental notices, appraisals, property inspection reports, environmental site assessments, estoppel certificates, rent rolls, certificates of authority, and the like, must be dated near in time to the Closing, often within a few days or weeks of Closing. If prepared and dated too far in advance, they become stale and meaningless and must be redone, resulting in additional time and expense. The reality is that commercial real estate Closings often involve big dollar amounts and evolving circumstances. Rather than complain and stress-out over the hectic pace of coordinating all Closing requirements and conditions as Closing approaches, you are wise to anticipate the fast paced frenzy leading up to Closing and should be prepared for it.</p>
<p>As Closing approaches, commercial real estate counsel, real estate brokers and necessary representatives of the buyer and seller should remain available and ready to respond to changing demands and circumstances. This is not a time to go on vacation or to be on an out-of-town business trip. It is a time to remain focused and ready for action. Recognizing that pre-Closing frenzy is the norm rather than an exception for commercial real estate transactions may help ease tension among the parties and their respective counsel and pave the way for a successful Closing.</p>
<p>Like it or not, this is the way it is. Prepare for the Closing frenzy and be available to respond. This is the way it works. Anyone who tells you differently is either lying to you or has had little experience in Closing commercial real estate transactions.</p>
<p class="has-text-align-center">****</p>
<p> So there you have it. The four <strong>KEYS TO CLOSING</strong> a commercial real estate transaction.</p>
<h2 class="wp-block-heading"> 1. <span style="text-decoration: underline;">H</span>AVE A PLAN</h2>
<h2 class="wp-block-heading"> 2. <span style="text-decoration: underline;">A</span>SSESS AND UNDERSTAND THE ISSUES</h2>
<h2 class="wp-block-heading"> 3. <span style="text-decoration: underline;">R</span>ECOGNIZE AND OVERCOME THIRD PARTY INERTIA</h2>
<h2 class="wp-block-heading"> 4. <span style="text-decoration: underline;">P</span>REPARE FOR THE CLOSING FRENZY</h2>
<p>Apply these Keys to Closing, and your chance of success goes up. Ignore these Keys to Closing, and your transaction may drift into oblivion.</p>
<p><em>Thanks for listening,</em></p>
<p><em> Kymn</em></p>
<p> </p>
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<item>
<title>DUE DILIGENCE CHECKLISTS for Commercial Real Estate Transactions</title>
<link>http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/</link>
<comments>http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 26 Mar 2015 00:06:49 +0000</pubDate>
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<guid isPermaLink="false">http://harp-onthis.com/?p=1095</guid>
<description><![CDATA[ 2016 Updat Are you planning to purchase, finance, develop or redevelop any of the following types of commercial real estate in the USA? A KEY element of successfully investing in commercial real estate is performing an adequate Due Diligence Investigation […]]]></description>
<content:encoded><![CDATA[<div class="wp-block-image">
<figure class="alignright"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="R. Kymn Harp Robbins, Salomon & Patt, Ltd." class="wp-image-1145" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /></a><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<h6 class="wp-block-heading"> <span style="color: #199ca8;">2016 Updat</span></h6>
<h2 class="wp-block-heading"><span style="color: #098f9c;">Are you planning to purchase, finance, develop or redevelop any of the following types of commercial real estate in the USA?</span></h2>
<ul class="wp-block-list">
<li>Shopping Center</li>
<li>Office building</li>
<li>Large Multifamily/Apartments/Condominium Project</li>
<li>Sports and/or Entertainment Venue</li>
<li>Mixed-Use Commercial-Residential-Office</li>
<li>Parking Lot/Parking Garage</li>
<li>Retail Store</li>
<li>Lifestyle or Enclosed Mall</li>
<li>Restaurant/Banquet Facility</li>
<li>Intermodal logistics/distribution facility</li>
<li>Medical Building</li>
<li>Gas Station</li>
<li>Manufacturing facility</li>
<li>Pharmacy</li>
<li>Special Use facility</li>
<li>Air Rights parcel</li>
<li>Subterranean parcel</li>
<li>Infrastructure improvements</li>
<li>Other commercial (non-single family, non-farm) property</li>
</ul>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="109" data-attachment-id="1041" data-permalink="http://harp-onthis.com/illinois-llcs-the-asset-protection-advantage/rsp_logohd-3/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"}" data-image-title="RSP_LogoHD (3)" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109" alt="RSP_LogoHD (3)" class="wp-image-1041" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>A KEY element of successfully investing in commercial real estate is performing an adequate Due Diligence Investigation prior to becoming legally bound to acquire or finance the property. Conducting a Due Diligence Investigation is important not just to enable you to walk away from the transaction, if necessary, but even more importantly to enable you to discover obstacles and opportunities presented by the property that can be addressed prior to closing, to enable the transaction to proceed in a manner most beneficial to your overall objective. An adequate Due Diligence Investigation will assure awareness of all material facts relevant to the intended use or disposition of the property after closing. This is a critical point. The ultimate objective is not just to get to Closing – but rather to confirm that the property can be used or developed as intended <em>after</em> Closing.</p>
<p>The following checklists – while not all-inclusive – will help you conduct a focused and meaningful Due Diligence Investigation.</p>
<span id="more-1095"></span>
<h2 class="wp-block-heading"><span style="color: #199ca8;">BASIC DUE DILIGENCE CONCEPTS</span></h2>
<p><em>Caveat Emptor</em>: Let the Buyer beware.</p>
<p>Consumer protection laws applicable to home purchases and other consumer transactions seldom apply to commercial real estate transactions. The rule that a Buyer must examine, judge, and test for himself, applies to the purchase of all commercial real estate in the USA.</p>
<p><em>Due Diligence</em>: <span style="text-decoration: underline;">Black’s Law Dictionary</span>, West Publishing Company defines Due Diligence as follows:</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p>Such measure of prudence, activity, or assiduity, as is proper to be expected from, and ordinarily exercised by a prudent (person) under the particular circumstances; not measured by any absolute standard, but depending upon the relative facts of the specific case.</p>
</blockquote>
<p>Contract representations and warranties are <em>NOT</em> an adequate substitute for Due Diligence. A breach of a representation or warranty will simply mean you have the right to sue – which is time consuming and expensive.</p>
<p>The point of commercial real estate due diligence is to avoid transaction surprises and confirm that the property can be used and function as intended.</p>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="199" data-attachment-id="614" data-permalink="http://harp-onthis.com/perfect-seller/questions-and-answers-signpost/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=1699%2C1130" data-orig-size="1699,1130" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"Concept image of the six most common questions and answers on a signpost.","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"Questions and Answers signpost"}" data-image-title="Questions and Answers signpost" data-image-description="<p>Concept image of the six most common questions and answers on a signpost.</p>
" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=300%2C199" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=1024%2C681" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=300%2C199" alt="Questions and Answers signpost" class="wp-image-614" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=300%2C199 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=1024%2C681 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=451%2C300 451w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?w=1699 1699w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>Basic transaction due diligence will focus on the fundamental elements of any storyline: Who, What, Where, When, Why and How. These are key elements of inquiry that must be answered for any transaction, whether or not the transaction involves commercial real estate as its principal focus.</p>
<p>Property due diligence for commercial real estate will focus on four (4) primary areas of concern:</p>
<ul class="wp-block-list">
<li>Market Demand</li>
<li>Access</li>
<li>Uses</li>
<li>Finances</li>
</ul>
<p>For a detailed discussion of the four primary areas of concern, see my article: <a title="Commercial Real Estate Due Diligence – Do You Know the Four Areas of Inquiry?" href="http://harp-onthis.com/commercial-real-estate-due-diligence-do-you-know-the-four-areas-of-inquiry/" target="_blank" rel="noopener">Commercial Real Estate Due Diligence: Do You Know the Four Areas of Inquiry?</a></p>
<p>Before focusing on the four areas of concern for property due diligence, transaction due diligence requires that we consider for whom the Due Diligence Investigation is being conducted. The scope, intensity, and focus of any Due Diligence Investigation of commercial real estate will depend upon the objectives of the party for whom the investigation is being conducted. These objectives may vary depending upon whether the investigation is being conducted for the benefit of: (i) a Strategic Buyer (or long-term lessee); (ii) a Financial Buyer; (iii) a Developer (whether ground-up development, or redevelopment for adaptive reuse); or (iv) a Lender.</p>
<p>If you are a Seller, understand that to Close the transaction, your Buyer and its Lender must address all issues material to their respective objectives – some of which require information only you, as Owner, can adequately provide. If you are a Seller, please see my article: <a title="PERFECT SELLER – Selling Commercial Real Estate" href="http://harp-onthis.com/perfect-seller/" target="_blank" rel="noopener">Perfect Seller</a> for guidance.</p>
<h3 class="wp-block-heading"><span style="color: #199ca8;">GENERAL DUE DILIGENCE OBJECTIVES</span></h3>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1833" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="due-diligence-word-on-wooden-cube-isolated-on-orange-background-1" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?resize=400%2C267" alt="due diligence word on wooden cube isolated on orange background" class="wp-image-1833" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/due-diligence-word-on-wooden-cube-isolated-on-orange-background-1.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p><span style="color: #000000;">(i) A <em>Strategic Buyer </em></span>(or long-term lessee) is acquiring the property for its own use, and must verify that the property is suitable for the intended use.</p>
<p>(ii) A <em>Financial Buyer</em> is acquiring the property for the expected return on investment generated by the property’s anticipated revenue stream, and must determine the amount, velocity, and durability of the revenue stream. This will likely include a consideration of credit-worthiness and market demand of long-term tenants, lease rental rates at the property compared to lease rental rates for comparable properties in the marketplace which may impact lease renewal rates, lease duration and expiration dates of all property leases to gauge exposure to mass-vacancies, tenant co-occupancy requirements and other factors that may impact the durability of the revenue stream generated by the property. A sophisticated Financial Buyer will likely calculate its yield based upon discounted cash-flows rather than the much less precise capitalization rate (“cap rate”), and will need adequate financial information to do so.</p>
<p>(iii) A <em>Developer</em> is seeking to add value by changing the character or use of the property – usually with a short-term to intermediate-term exit strategy to dispose of the property; although a Developer might plan to hold the property long-term as a Financial Buyer after development or redevelopment. The Developer must focus upon whether the planned change in character or use can be accomplished in a cost-effective manner.</p>
<p>(iv) A <em>Lender</em> is seeking to establish two basic lender criteria:</p>
<p> 1. <em>Ability to Repay</em> – The ability of the property to generate sufficient revenue to repay the loan an a timely basis; <em>and</em></p>
<p>2. <em>Sufficiency of Collateral</em> – The objective disposal value of the collateral in the event of a loan default, to assure adequate funds to repay the loan, carrying costs and costs of collection in the event forced collection becomes necessary. Particularly in light of the collapse of the commercial real estate market during the <em>Great Recession</em> of recent years, a Lender may pay particular attention to the overall loan coverage ratio, sources of equity, debt coverage ratio, and, similar to a Financial Buyer, may be concerned with the credit-worthiness and market demand of long-term tenants, lease rental rates at the property compared to lease rental rates for comparable properties in the marketplace which may impact lease renewal rates, lease duration and expiration dates of all property leases to gauge exposure to mass-vacancies, tenant co-occupancy requirements and other factors that may impact future value of the collateral.</p>
<p>The amount of diligent inquiry due to be expended (i.e.<em> due diligence</em>) to investigate any particular commercial real estate project is the amount of inquiry required to answer in the affirmative each question that must be answered yes, and to answer in the negative each question that must be answered no, to address all material concerns of the party for whom the Due Diligence Investigation is being undertaken.</p>
<p>The following Due Diligence Checklists are offered as helpful guides to assist in focusing on important issues to be considered in connection with a commercial real estate transaction.</p>
<h3 class="wp-block-heading"><span style="color: #199ca8;">I. THE PROPERTY</span></h3>
<p><span style="color: #000000;">1. Exactly what PROPERTY does the Purchaser believe it is acquiring?</span></p>
<ul class="wp-block-list">
<li>Land?</li>
<li>Building?</li>
<li>Fixtures?</li>
<li>Other Improvements?</li>
<li>Other Rights?</li>
<li>The entire fee title interest including all air rights?</li>
<li>All development rights?</li>
</ul>
<p>2. What is Purchaser’s planned use of the Property?</p>
<p>3. Does the physical condition of the Property permit use as planned?</p>
<ul class="wp-block-list">
<li>Commercially adequate access to public streets and ways?</li>
<li>Sufficient parking?</li>
<li>Structural condition of improvements?</li>
<li>Wi-fi ready with access to high speed internet?</li>
<li>Environmental contamination?
<ul class="wp-block-list">
<li>Innocent Purchaser defense vs. exemption from liability</li>
<li>All Appropriate Inquiry</li>
</ul>
</li>
</ul>
<p>4. Is there any legal restriction to Purchaser’s use of the Property as planned?</p>
<ul class="wp-block-list">
<li>Zoning?</li>
<li>Private land use controls?</li>
<li>Americans with Disabilities Act?</li>
<li>Availability of Licenses?
<ul class="wp-block-list">
<li>Liquor license?</li>
<li>Entertainment license?</li>
<li>Outdoor dining license?</li>
</ul>
</li>
<li> Drive through windows permitted?</li>
<li>Other legal restrictions or impediments?</li>
</ul>
<p>5. How much does Purchaser expect to pay for the Property?</p>
<p>6. Is there any condition on or within the Property that is likely to increase Purchaser’s effective cost to acquire or use the Property?</p>
<ul class="wp-block-list">
<li>Property owner’s assessments?</li>
<li> Real estate tax in line with value?</li>
<li>Special Assessment?</li>
<li>Required user fees for necessary amenities?</li>
<li>Drainage?</li>
<li>Access?</li>
<li>Parking?</li>
<li>Other?</li>
</ul>
<p>7. Any encroachments onto the Property, or from the Property onto other lands?</p>
<p>8. Are there any encumbrances on the Property that will not be cleared at Closing?</p>
<ul class="wp-block-list">
<li>Easements?</li>
<li>Covenants running with the land?</li>
<li>Liens or other financial servitude?</li>
<li>Leases?</li>
</ul>
<p>9. If the Property is subject to any Leases, are there any?</p>
<ul class="wp-block-list">
<li>Security Deposits?</li>
<li>Options to Extend Term?</li>
<li>Options to Purchase?</li>
<li>Rights of First Refusal?</li>
<li>Rights of First Offer?</li>
<li>Rights of Early Termination?</li>
<li>Maintenance obligations?</li>
<li>Duty of Landlord to provide utilities?</li>
<li>Real estate tax or CAM escrows?</li>
<li>Delinquent rent?</li>
<li>Prepaid rent?</li>
<li>Tenant mix/use controls?</li>
<li>Tenant co-occupancy covenants?</li>
<li>Tenant exclusives?</li>
<li>Tenant Parking requirements?</li>
<li><a title="Commercial Landlord-Tenant Issues – PART 1 – Getting it Right" href="http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/" target="_blank" rel="noopener">Leasehold easements?</a></li>
<li><a title="COMMERCIAL LANDLORD-TENANT – Part 2 – The Covenant of Quiet Enjoyment" href="http://harp-onthis.com/commercial-landlord-tenant-part-2-the-covenant-of-quiet-enjoyment/" target="_blank" rel="noopener">Strict covenants of quiet enjoyment?</a></li>
<li>Automatic subordination of Lease to future mortgages?</li>
<li>Other material Lease terms?</li>
</ul>
<p>10. New Construction?</p>
<ul class="wp-block-list">
<li>Availability of construction permits?</li>
<li>Site plan approvals?</li>
<li>Soil conditions?</li>
<li>Utilities?</li>
<li>Curb cuts?</li>
<li>Traffic control requirements?</li>
<li>NPDES (National Pollutant Discharge Elimination System) Permit?
<ul class="wp-block-list">
<li>Storm Water Pollution Prevention Plan required?</li>
</ul>
</li>
<li>Other governmental approvals required?</li>
</ul>
<h3 class="wp-block-heading"><span style="color: #199ca8;">II. THE SELLER</span></h3>
<p><span style="color: #000000;">1. Who is the Seller?</span></p>
<ul class="wp-block-list">
<li>Individual?</li>
<li>Trust?</li>
<li>Partnership?</li>
<li>Corporation?</li>
<li>Limited liability company?</li>
<li>Other legally existing entity?</li>
</ul>
<p>2. If other than a natural person, does the Seller validly exist and is Seller in good standing?</p>
<p>3. Does the Seller own the Property?</p>
<p>4. Does the Seller have authority to convey the Property?</p>
<ul class="wp-block-list">
<li>Board of Director approval?</li>
<li>Shareholder or Member approval?</li>
<li>Other consents?</li>
<li>If foreign individual or entity, are any special requirements applicable?
<ul class="wp-block-list">
<li>Qualification to do business in jurisdiction of Property?</li>
<li>Federal tax withholding?</li>
<li>U.S. Patriot Act compliance?</li>
<li>Bank Secrecy Act/Anti-Money Laundering Compliance?</li>
</ul>
</li>
</ul>
<p>5. Who has authority to bind the Seller?</p>
<p>6. Are sale proceeds sufficient to pay off all liens?</p>
<h3 class="wp-block-heading"><span style="color: #199ca8;"> III. THE PURCHASER</span></h3>
<p><span style="color: #000000;">1. Who is the Purchaser?</span></p>
<p>2. What is the Purchaser/Grantee’s exact legal name?</p>
<p>3. If Purchaser/Grantee is an entity, has it been validly created and is it in good standing?</p>
<ul class="wp-block-list">
<li>Articles of Incorporation – Articles of Organization or Formation?</li>
<li>Certificate of Good Standing?</li>
</ul>
<p>4. Is the Purchaser/Grantee authorized to own and operate the Property and, if applicable, finance acquisition of the Property?</p>
<ul class="wp-block-list">
<li>Board of Director approvals?</li>
<li>Shareholder or Member approvals?</li>
<li>If foreign individual or entity, are any special requirements applicable?
<ul class="wp-block-list">
<li>Qualification to do business in jurisdiction of the Property?</li>
<li>U.S. Patriot Act compliance?</li>
<li>Bank Secrecy Act/Anti-Money Laundering compliance?</li>
</ul>
</li>
</ul>
<p>5. Who is authorized to bind the Purchaser/Grantee?</p>
<h3 class="wp-block-heading"><span style="color: #199ca8;">IV. TRANSACTION STRUCTURE</span></h3>
<p><span style="color: #000000;">1. Is transaction a cash purchase?</span></p>
<p>2. Purchase with lender financing?</p>
<ul class="wp-block-list">
<li>Bank financing?</li>
<li>Insurance company financing?</li>
<li>Hard money loan?</li>
<li>Seller financing?
<ul class="wp-block-list">
<li>Installment Agreement for Deed?</li>
<li>Seller provided mortgage?</li>
</ul>
</li>
</ul>
<p>3. <a title="Keys Rules For Section 1031 Exchanges" href="http://harp-onthis.com/keys-rules-section-1031-exchanges/" target="_blank" rel="noopener">Tax-deferred exchange pursuant to Section 1031 </a>of the Internal Revenue Code?</p>
<ul class="wp-block-list">
<li>Replacement property identified?</li>
<li>Qualified Intermediary selected?</li>
<li>Key time periods determined to comply with Section 1031 exchange rules?</li>
<li>Reverse exchange?</li>
<li>Other Section 1031 compliance issues?</li>
</ul>
<p>4. <a title="10 Things to Know About Commercial Real Estate Development Agreements" href="http://harp-onthis.com/10-things-know-commercial-real-estate-development-agreements/">Public-Private Partnerships</a> with municipal or other governmental economic incentives?</p>
<ul class="wp-block-list">
<li>Tax increment financing?</li>
<li>Sales tax revenue sharing?</li>
<li>Business district financing?</li>
<li>Special service area financing?</li>
<li>Municipal General Obligation loan?</li>
</ul>
<p>5. Third-party Source Payments?</p>
<ul class="wp-block-list">
<li>Naming rights agreements?</li>
<li>Sponsorships?</li>
<li>Concession agreements?</li>
</ul>
<h3 class="wp-block-heading"><span style="color: #199ca8;">V. PURCHASER FINANCING</span></h3>
<h4 class="wp-block-heading"><span style="color: #199ca8;">A. BUSINESS TERMS OF THE LOAN</span></h4>
<p><span style="color: #000000;">1. What loan terms have the Borrower and its Lender agreed to?</span></p>
<ul class="wp-block-list">
<li>What is the amount of the loan?</li>
<li>What is the interest rate?</li>
<li>What are the repayment terms?</li>
<li>What is the collateral?
<ul class="wp-block-list">
<li>Commercial real estate only?</li>
<li>Real estate and personal property together?</li>
<li>First lien?</li>
<li>Junior lien?</li>
</ul>
</li>
<li>Is it a single advance loan?</li>
<li>A multiple advance loan?</li>
<li>A construction loan?</li>
<li>If it is a multiple advance loan, can the principal be re-borrowed once repaid prior to maturity of the loan; making it, in effect, a revolving line of credit?</li>
<li>Are there reserve requirements?
<ul class="wp-block-list">
<li>Interest reserves?</li>
<li>Repair reserves?</li>
<li>Real estate tax reserves?</li>
<li>Insurance reserves?</li>
<li>Environmental remediation reserves?</li>
<li>Other reserves?</li>
</ul>
</li>
</ul>
<p>2. Are there requirements for Borrower to open business operating accounts with the Lender? If so, is the Borrower obligated to maintain minimum compensating balances?</p>
<p>3. Is the Borrower required to pledge business accounts as additional collateral?</p>
<p>4. Are there early repayment fees or yield maintenance requirements (each sometimes referred to as “prepayment penalties”)?</p>
<p>5. Are there repayment blackout periods during which the Borrower is not permitted to repay the loan?</p>
<p>6. Is a profit participation payment to Lender required upon disposition?</p>
<p>7. Is there a Loan Commitment fee or “good faith deposit” due upon Borrower’s acceptance of the Loan Commitment?</p>
<p>8. Is there a loan funding fee or loan brokerage fee or other loan fee due Lender or a loan broker at Closing?</p>
<p>9. Is there a Exit Fee due to Lender upon the loan being paid off?</p>
<p>10. What are the Borrower’s expense reimbursement obligations to Lender? When are they due? What is the Borrower’s obligation to pay the Lender’s expenses if the loan does not close?</p>
<h4 class="wp-block-heading"><span style="color: #199ca8;">B. DOCUMENTING THE COMMERCIAL REAL ESTATE LOAN</span></h4>
<p>Does the Purchaser/Borrower have all information necessary to comply with the Lender’s loan closing requirements?</p>
<p>Not all loan documentation requirements may be known at the outset of a transaction, although most commercial real estate loan documentation requirements are fairly typical. Some required information can be obtained only from the Seller. Production of that information to Purchaser for delivery to its lender must be required in the purchase contract.</p>
<p>As guidance to what a commercial real estate lender may require, the following sets forth a fairly typical Closing Checklist for a loan secured by commercial real estate.</p>
<h5 class="wp-block-heading"><span style="color: #199ca8;">COMMERCIAL REAL ESTATE LOAN CLOSING CHECKLIST</span></h5>
<p><span style="color: #000000;">1. Promissory Note</span></p>
<p>2. Personal Guaranties (which may be full, partial, secured, unsecured, payment guaranties, collection guaranties, so-called “<em>bad boy</em>” guaranties, or a variety of other types of guaranties as may be required by Lender)</p>
<p>3. Loan Agreement (often incorporated into the Promissory Note and/or Mortgage in lieu of being a separate document)</p>
<p>4. Mortgage (sometimes expanded to be a Mortgage, Security Agreement and Fixture Filing)</p>
<p>5. Assignment of Rents</p>
<p>6. Security Agreement</p>
<p>7. Financing Statement</p>
<p>8. Evidence of Borrower’s Existence in Good Standing, including:</p>
<ul class="wp-block-list">
<li>Certified copy of organizational documents of borrowing entity (including Articles of Incorporation, if Borrower is a corporation; Articles of Organization (or in Delaware, Articles of Formation) and a written Operating Agreement, if Borrower is a limited liability company; certified copy of trust agreement with all amendments, if Borrower is a land trust or other trust; etc.)</li>
<li>Certificate of Good Standing (if a corporation or LLC) or Certificate of Existence (if a limited partnership) or Certificate of Qualification to Transact Business (if Borrower is an entity doing business in a State other than its State of formation)</li>
</ul>
<p>9. Evidence of Borrower’s Authority to Borrow, including:</p>
<ul class="wp-block-list">
<li>Borrower’s Certificate</li>
<li>Certified resolutions</li>
<li>Incumbency Certificate</li>
</ul>
<p>10. Satisfactory Commitment for Title Insurance (which will typically require, for analysis by the Lender, copies of all documents or record appearing on Schedule B of the title commitment which are to remain after Closing), with required commercial title insurance endorsements, often including:</p>
<ul class="wp-block-list">
<li>ALTA 3.1 Zoning Endorsement modified to include parking (although, if the Property is a multi-user property, such as a retail shopping center, an ALTA 3.0 Zoning endorsement may be appropriate)</li>
<li>ALTA Comprehensive Endorsement No. 1</li>
<li>Location Endorsement (street address)</li>
<li>Access Endorsement (insuring commercially reasonable vehicular and pedestrian access to public streets and ways)</li>
<li>Contiguity Endorsement (the insured land comprises as single parcel with no gaps or gores)</li>
<li>PIN Endorsement (insuring that he identified real estate tax permanent index numbers (PIN) are the only applicable PIN numbers affecting the collateral, and that they relate solely to the real property comprising the collateral)</li>
<li>Usury Endorsement (insuring that the loan does not violate prohibitions against excessive interest charges)</li>
<li>other title insurance endorsements applicable to protect the intended use and value of the real estate collateral, as may be determined upon review of the Commitment for Title Insurance, Survey and documents of record, or arising from the existence of special issues pertaining to the transaction or the Borrower</li>
</ul>
<p>11. Current ALTA/NSPS Land Title Survey (3 sets), prepared in accordance with the 2016 (or current) Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys, with such Table A Additional Requirements as the Lender may determine necessary.</p>
<p>12. Current certified Rent Roll</p>
<p>13. Certified copy of all Leases (4 sets – 1 each for Buyer, Buyer’s attorney, Title Company, and Lender)</p>
<p>14. Lessee Estoppel Certificates</p>
<p>15. Lessee Subordination, Non-Disturbance and Attornment Agreements (sometimes referred to simply as “SNDAs”)</p>
<p>16. UCC, Judgment, Pending Litigation, Bankruptcy and Tax Lien Search Report</p>
<p>17. Appraisal – complying with Title XI of FIRREA (Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended)</p>
<p>18. Environmental Site Assessment Report (sometimes referred to as Environmental Phase I and/or Phase 2 Audit Report) prepared in accordance with ASTM Standard e1527-13 (or current)</p>
<p>19. Environmental Indemnity Agreement (signed by Borrower and Guarantors)</p>
<p>20. Site Improvements Assessment Report (sometimes an ASTM Property Condition Assessment prepared in accordance with ASTM Standard e2018-08 (or current) is required)</p>
<p>21. Evidence of Hazard Insurance naming Lender as the Mortgagee/Lender Loss Payee; and Liability Insurance naming Lender as an “<em>additional insured</em>” (sometimes listed simply as “Acord 27” and “Acord 25”, respectively); and sometimes a separate “Agreement to Provide Insurance”</p>
<p>22. Legal Opinion of Borrower’s Counsel</p>
<p>23. Credit Underwriting documents, such as signed tax returns, property operating statements, etc. as may be specified by the Lender</p>
<p>24. Compliance Agreement (sometimes also called an Errors and Omissions Agreement), whereby the Borrower agrees to correct, after Closing, errors or omissions in the loan documentation</p>
<p class="has-text-align-center"><strong><span style="color: #199ca8;">*****</span></strong></p>
<p>It is useful to become familiar with the Lender’s loan documentation requirements as early in the transaction as practical. The requirements will likely be set forth in some detail in the Lender’s Loan Commitment – which is the contract that serves as the road map for the loan transaction between Borrower and Lender. In Illinois, to be binding, the Loan Commitment must be in writing and be signed by the Lender.</p>
<p>Conducting the Due Diligence Investigation (that is to say, investigating all property and transactional concerns material to the commercial real estate transaction with all diligence due under the circumstances) can be time consuming and expensive. It can be made less so by knowing what to look for, devising a due diligence plan, and focusing on those matters that are of material concern.</p>
<p>If the loan requirements cannot be satisfied, it is better to make that determination during the contractual “<em>due diligence period</em>” – which typically provides for a so-called “<em>free out</em>” when the Borrower/Purchaser can receive the return of part or all of its earnest money deposit and avoid full liability under the purchase agreement for failure to move forward – rather than at a later date when the earnest money may be at risk of forfeiture or when other liability for failure to Close may attach.</p>
<h3 class="wp-block-heading"><span style="color: #199ca8;">CONCLUSION</span></h3>
<p>Conducting an effective Due Diligence Investigation in a commercial real estate transaction to discover all material facts and conditions affecting the Property and the transaction is of critical importance. Doing so will help identify risks which may be present in any commercial transaction, so the risks can be adequately shifted or otherwise mitigated. A properly focused investigation conducted with appropriate due diligence may disclose previously unrecognized opportunities as well as potential problems. An appropriate Due Diligence Investigation requires intentional and focused attention to all details material to the Property and to the transaction by a skilled professional, or group of professionals, who can recognize significant issues and opportunities. An investigation that is not properly focused may miss critical issues and may be overly broad and excessively expensive.</p>
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<p>Recommendation: Exercise Due Diligence.</p>
<p>We are here to help.</p>
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<title>COMMERCIAL LANDLORD-TENANT – Part 2 – The Covenant of Quiet Enjoyment</title>
<link>http://harp-onthis.com/commercial-landlord-tenant-part-2-the-covenant-of-quiet-enjoyment/</link>
<comments>http://harp-onthis.com/commercial-landlord-tenant-part-2-the-covenant-of-quiet-enjoyment/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 23 Mar 2015 11:00:24 +0000</pubDate>
<category><![CDATA[Business]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[Landlord-Tenant]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[adaptive reuse]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial landlord tenant]]></category>
<category><![CDATA[commercial lease]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[commercial tenant rights]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[default]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[enforcement actions]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[quiet enjoyment]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[urban infill]]></category>
<category><![CDATA[what to look for]]></category>
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<description><![CDATA[This is Part 2 of a multi-part series of articles discussing the duties, rights and remedies of commercial real estate tenants in Illinois. Part 1, entitled “Getting It Right” discussed the importance of clarity in lease drafting, and the potential […]]]></description>
<content:encoded><![CDATA[
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p></p>
</blockquote>
<div class="wp-block-image">
<figure class="alignleft is-resized"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="R. Kymn Harp Robbins, Salomon & Patt, Ltd." class="wp-image-1145" style="width:175px;height:245px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /></a><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="175" height="245" data-attachment-id="1051" data-permalink="http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/catherine-cooke-shareholder-at-rsp/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" data-orig-size="175,245" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D7000","caption":"","created_timestamp":"1367319064","copyright":"","focal_length":"98","iso":"125","shutter_speed":"0.008","title":"","orientation":"1"}" data-image-title="Catherine Cooke" data-image-description="" data-image-caption="<p>Catherine Cooke<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?resize=175%2C245" alt="Catherine Cook Shareholder at Robbins, Salomon & Patt, Ltd." class="wp-image-1051"/></a><figcaption class="wp-element-caption">Catherine A. Cooke<br /> Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p><em>This is Part 2 of a multi-part series of articles discussing the duties, rights and remedies of commercial real estate tenants in Illinois. <a title="Commercial Landlord-Tenant Issues – PART 1 – Getting it Right" href="http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/" target="_blank" rel="noopener">Part 1, entitled “Getting It Right”</a> discussed the importance of clarity in lease drafting, and the potential for unintended leasehold easements for parking, and other uses.</em></p>
<p><em>In March 2015, the Illinois Institute for Continuing Legal Education (“IICLE”) published its 2015 Edition practice handbook entitled: Commercial Landlord-Tenant Practice. To provide best-practice guidance to all Illinois attorneys, IICLE recruits experienced attorneys with relevant knowledge to write each handbook chapter. For the 2015 Edition, IICLE asked R. Kymn Harp and Catherine A. Cooke to write the chapter entitled Tenant’s Duties, Rights and Remedies. We were, of course, pleased to oblige. Although each of us represent commercial landlords at least as often as we represent commercial tenants, a clear understanding of the duties, rights and remedies of commercial real estate tenants is critical when representing either side of the commercial lease transaction. </em></p>
<p><em>The following is an excerpt (slightly edited) from our chapter in the 2015 Edition. We hope you find this excerpt, and the excerpts that will follow, informative and useful. Feel free to contact IICLE directly to purchase the entire volume.</em></p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">The COVENANT OF QUIET ENJOYMENT </span><br /><span style="color: #1897ab;">What Is It? — General Principles</span></h2>
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<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" width="1000" height="667" data-attachment-id="1836" data-permalink="http://harp-onthis.com/commercial-landlord-tenant-part-2-the-covenant-of-quiet-enjoyment/sweetidleness-lazyyounghispanicladysitinrelaxedpose/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2022 fizkes\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Sweet,Idleness.,Lazy,Young,Hispanic,Lady,Sit,In,Relaxed,Pose","orientation":"1"}" data-image-title="Sweet,Idleness.,Lazy,Young,Hispanic,Lady,Sit,In,Relaxed,Pose" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?resize=1000%2C667" alt="successful female new flat apartment buyer rest at home feel pleasure" class="wp-image-1836" style="width:400px;height:267px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 1000px) 100vw, 1000px" /></figure></div>
<p>It has long been the law in Illinois that a covenant of quite enjoyment is implied in all lease agreements. <em>Blue Cross Ass’n v. 666 N. Lake Shore Drive Associates</em>, 100 Ill.App.3d 647, 427 N.E.2d 270, 273, 56 Ill.Dec. 290 (1st Dist. 1981); <em>64 East Walton, Inc. v. Chicago Title & Trust Co</em>., 69 Ill.App.3d 635, 387 N.E.2d 751, 755, 25 Ill.Dec. 875 (1st Dist. 1979); <em>Berrington v. Casey</em>, 78 Ill. 317, 319 (1875); <em>Wade v. Halligan</em>, 16 Ill. 507, 511 (1855).</p>
<p>A covenant of quiet enjoyment “promises that the tenant shall enjoy the possession of the premises in peace and without disturbance.” [Emphasis in original.] <em>Checkers, Simon & Rosner v. Lurie Co</em>., No. 87 C 5405, 1987 WL 18930 at *3 (N.D.Ill. Oct. 20, 1987). This does not mean, however, that no breach of the covenant of quiet enjoyment may be found in a leasehold without a finding that the lessor intended to deprive the lessee of possession. <em>Blue Cross Ass’n, supra</em>, 427 N.E.2d at 27. It simply means that a tenant must actually be in possession of the premises to claim a breach of the covenant of quiet enjoyment. If the tenant has already vacated the premises before the disturbance has commenced, no breach of the covenant of quiet enjoyment occurs. <em>Checkers, Simon & Rosner, supra</em>, 1987 WL 18930 at *3.</p>
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<p>An implied covenant of quiet enjoyment includes, “absent a lease clause to the contrary, the right to be free of the lessors’ intentional interference with full enjoyment and use of the leased premises.” <em>Infinity Broadcasting Corporation of Illinois v. Prudential Insurance Company of America</em>, No. 86 C 4207, 1987 WL 6624 at *5 (N.D.Ill. Feb. 9, 1987), aff’d, 869 F.2d 1073 (7th Cir. 1989), quoting <em>American Dairy Queen Corp. v. Brown-Port Co</em>., 621 F.2d 255, 258 (7th Cir. 1980).</p>
<p>If the landlord breaches the covenant of quiet enjoyment, the lessee may remain in possession and claim damages for breach of lease. In such case, the measure of damages is the difference between the rental value of the premises in light of the breached covenant of quiet enjoyment and the rent that the tenant agreed to pay under the lease, together with such special damages as may have been directly and necessarily incurred by the tenant in consequence of the landlord’s wrongful act. <em>64 East Walton, supra</em>, 387 N.E.2d at 755.</p>
<p>Although Illinois cases defining the precise scope of a covenant of quiet enjoyment are rare, BLACK’S LAW DICTIONARY, pp. 1248 – 1249 (6th ed. 1993) defines “quiet enjoyment” in connection with the landlord-tenant relationship as “the tenant’s right to freedom from serious interferences with his or her tenancy. <em>Manzaro v. McCann</em>, 401 Mass. 880, 519 N.E.2d 1337, 1341. (Ringing for more than one day of smoke alarms in an apartment building could be sufficient interference with the tenants’ quite enjoyment of leased premises to justify relief against the landlord.).”</p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">HOW THE COVENANT OF QUIET ENJOYMENT MAY APPLY— CASE LAW</span></h2>
<p>In <em>Blue Cross Ass’n v. 666 N. Lake Shore Drive Associates</em>, 100 Ill.App.3d 647, 427 N.E.2d 270, 273, 56 Ill.Dec. 290 (1st Dist. 1981), the First District Appellate Court discussed the covenant of quiet enjoyment in the lease as granting the tenant a right of quiet and peaceful possession and enjoyment of the whole premises and equated a breach of quiet enjoyment under a lease to a private nuisance. “A private nuisance in a leasehold situation is ‘an individual wrong arising from an unreasonable, unwarranted or unlawful use of one’s property producing such material annoyance, inconvenience, discomfort, or hurt that the law will presume a consequent damage.’ ” Id., quoting <em>Great Atlantic & Pacific Tea Co. v. LaSalle National Bank</em>, 77 Ill.App.3d 478, 395 N.E.2d 1193, 1198, 32 Ill.Dec. 812 (1st Dist. 1979).</p>
<p>The tenant had entered into a five-year lease on August 22, 1978, with a five-year renewal option, for approximately 53,000 square feet of the </p>
<span id="more-1065"></span>
<p>15th floor of the building located at 666 North Lake Shore Drive in Chicago. The lease stated that the premises were to be used for computer installation and general office space, and the tenant expended in excess of $2,000,000 in leasehold improvements, installed approximately $6,000,000 in computer equipment, and was fully operational in August 1980.</p>
<p>In April 1979, the building was purchased by a new owner for the purpose of converting it to a mixed-use residential, commercial, and office facility. In August 1979, the new owner advised the tenant that the renovation program required alternations in the plaintiff’s leasehold in the form of physical penetrations for installation of plumbing, ventilation, and electrical risers to service the condominium and office areas on floors above and below the tenant’s leased premises. The tenant refused to permit penetrations into the plaintiff’s leased space. Notwithstanding the tenant’s refusal, the landlord proceeded with construction and penetrated the tenant’s space for installation of the risers in accordance with the landlord’s renovation plans. The tenant sued to obtain a preliminary injunction, but the trial court declined to issue injunctive relief. The tenant appealed.</p>
<p>On appeal, the appellate court reversed the trial court, stating: “Paragraph 42A of the lease expressly grants (tenant) the right of quiet and peaceful possession and enjoyment. The meaning of this clause is not controverted. (Tenant) had a right to seek injunctive relief for its breach when the conduct of (landlord) substantially interfered with (tenants’) use and enjoyment of the premises.” 427 N.E.2d at 273.</p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">PRIVATE NUISANCE DISTINGUISHED</span></h2>
<p>Similar to breach of the covenant of quiet enjoyment is the tort of maintaining a nuisance. In <em>Great Atlantic & Pacific Tea Co. v. LaSalle National Bank</em>, 77 Ill.App.3d 478, 395 N.E.2d 1193, 1198, 32 Ill.Dec. 81 (1st Dist. 1979), the First District Appellate Court stated:</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p>A private nuisance is a nontrespassory invasion of another’s interest in the private use and enjoyment of land. . . . It is an individual wrong arising from an unreasonable, unwarranted or unlawful use of one’s property producing such material annoyance, inconvenience, discomfort, or hurt that the law will presume consequent damage. . . . What is an unreasonable use of one’s property under the circumstances, is determined by weighing the following factors:</p>
<p>(a) The extent of the harm involved;</p>
<p>(b) the character of the harm involved;</p>
<p>(c) the social value that the law attaches to the type of use or enjoyment invaded;</p>
<p>(d) the suitability of the particular use or enjoyment invaded to the character of the locality; and</p>
<p>(e) the burden on the person harmed or avoiding the harm.</p>
<p>. . . The weight that each factor is accorded is relative to the circumstances of the case.” [Citations omitted.]
</blockquote>
<h2 class="wp-block-heading"><span style="color: #1897ab;">SCOPE OF INVASION</span></h2>
<p>Although <em>Blue Cross Ass’n, supra</em>, involved a physical invasion of the tenant’s space, physical invasion is not necessarily required. A tenant has a right to the full use and enjoyment of the leased premises without the landlord’s intentional interference, absent a lease clause to the contrary. Infinity Broadcasting, supra. By equating a breach of the covenant of quiet enjoyment to a private nuisance, the Illinois Appellate Court, in <em>Blue Cross Ass’n, supra</em>, inferred that the breach could be a nontrespassory invasion into the tenant’s leased premises.</p>
<p><span style="color: #1897ab;"><strong>Query:</strong></span> Do the following activities by a landlord constitute a breach of the covenant of quiet enjoyment, absent an express lease clause permitting these activities, if the activities cause material annoyance, inconvenience, discomfort or hurt to the commercial tenant?</p>
<p><strong><span style="color: #1897ab;">√</span></strong> Loud construction on adjacent or nearby premises during normal business hours?</p>
<p><strong><span style="color: #1897ab;">√</span></strong> Prolonged disruption of elevator service or other access to the premises during normal business hours?</p>
<p><strong><span style="color: #1897ab;">√</span></strong> Failure to maintain working HVAC suitable to the tenant’s commercially reasonable use of the leased premises?</p>
<p><span style="color: #1897ab;"> </span><strong><span style="color: #1897ab;">PRACTICE POINTER</span></strong></p>
<p><span style="color: #1897ab;">A landlord in a multi-tenant building would be wise to include as part of the landlord’s “standard boilerplate” provisions, a modified covenant of quiet enjoyment granting landlord the right to reasonably penetrate the leased premises as necessary, appropriate or convenient to install and maintain plumbing, electrical, telecommunications, fire suppression, HVAC and other components and systems as determined by landlord, in landlord’s sole discretion, to be necessary, useful or convenient to the preparation, use and/or occupancy of other portions of the building, and to conduct construction activities in adjacent or nearby premises, and to temporarily modify the means and/or configuration of access to the premises for safety or convenience, so long as such activities do not unreasonably interfere with commercially reasonable use of the leased premises by tenant for the purposes for which the premises are leased. If the landlord fails to include such a provision, the tenant may have to right to stop landlord’s work.</span></p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">LIGHT AND AIR</span></h2>
<p>The covenant of quiet enjoyment does not guarantee a tenant a right to unobstructed light and air. In <em>Keating v. Springer</em>, 146 Ill. 481, 34 N.E. 805, 807 (1893), the Illinois Supreme Court held that “a landlord will not be liable for obstructing his tenant’s windows by building on an adjacent [lot], in the absence of any covenant or agreement in the lease forbidding him to do so.”</p>
<p>Similarly, in <em>Baird v. Hanna</em>, 328 Ill. 436, 159 N.E. 793, 794 (1927), the Illinois Supreme Court held that “the simplest rule, and that best suited to a country like the United States, in which changes are continually taking place in the ownership and in the use of lands, is that no easement of light can be acquired without the express grant of an interest in, or covenant relating to, the lands over which the right is claimed.”</p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">TELEVISION AND RADIO SIGNALS</span></h2>
<p>A claimed right to unobstructed transmission of television and radio signals has been held to the same standard and analysis as a claimed right to unobstructed light and air. While not actually a landlord-tenant case, <em>People ex rel. Hoogasian v. Sears, Roebuck & Co</em>., 52 Ill.2d 301, 287 N.E.2d 677 (1972), is instructive in its clarification that claimed easements for television and radio signals will be governed by the same analysis as claimed easements for light and air.</p>
<p>In <em>Hoogasian</em>, certain villages in the Chicago area sued to enjoin Sears from constructing the high-rise office building that became known as “Sears Tower” (now Willis Tower), contending that the tower would distort television reception and depress real estate values, and therefore constitute a nuisance. The Illinois Supreme Court upheld dismissal of the case, determining that the same standard applicable to light and air applies to television and radio signals, and applied the general rule that a landowner has no legal right to the free flow of light and air across the adjoining land of his or her neighbor. See also <em>Infinity Broadcasting Corporation of Illinois v. Prudential Insurance Company of America</em>, No. 86 C 4207, 1987 WL 6624 at *5 (N.D.Ill. Feb. 9, 1987), aff’d, 869 F.2d 1073 (7th Cir. 1989).</p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">DAMAGES FOR BREACH OF THE COVENANT OF QUIET ENJOYMENT</span></h2>
<p>In <em>64 East Walton, Inc. v. Chicago Title & Trust Co</em>., 69 Ill.App.3d 635, 387 N.E.2d 751, 25 Ill.Dec. 875 (1st Dist. 1979), the landlord did not contest that there was a breach of the covenant of quiet enjoyment but did contest the amount of damages awarded. In analyzing the scope of damages a tenant could recover for breach of the covenant of quiet enjoyment, the court stated:</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p>The relevant law, although by no means plentiful, is clear. A covenant of quiet enjoyment is implied in all lease agreements. . . . If the lessor breaches the covenant, the lessee may remain in possession and thus be liable for rent but still maintain an action for damages. . . . The measure of damages in such a case is the difference between the rental value of the premises involved and the rent which the lessee has agreed to pay, together with such special damages as may have directly and necessarily occasioned to the lessee by the lessor’s wrongful act. . . . Thus, we must examine the wrongful acts of defendant and determine whether they directly and necessarily occasioned the damages awarded, keeping in mind that a trial court’s assessment of damages will be set aside only if it is manifestly erroneous. (Citations omitted.) 387 N.E.2d at 755.</p>
</blockquote>
<p><strong><span style="color: #1897ab;">PRACTICE POINTER</span></strong></p>
<p><span style="color: #1897ab;">Generally speaking, a breach of a covenant of quiet enjoyment is a breach of a contractual covenant contained (or implied) in a lease, constituting a cause of action against a landlord. If the “material annoyance, inconvenience, discomfort, or hurt” is caused by a nearby property owner or cotenant, the proper cause of action against such adjacent property owner or cotenant is likely “maintaining a private nuisance” rather than a breach of any covenant of quiet enjoyment, since, under those circumstances, there is no privity of contract through which a “covenant” of any sort might arise.</span></p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">LESSON LEARNED</span></h2>
<p>The covenant of quiet enjoyment, while implied in all leases, is a covenant often expressly stated in the so-called “standard boilerplate” provisions of a commercial lease. As a contract covenant, it can be modified and adapted to the needs of the landlord and tenant by appropriate and careful drafting. Had the landlord in Blue Cross Ass’n, supra, included in the lease appropriate language granting it the right to enter upon and penetrate the tenant’s space for the purpose of installing plumbing, ventilation and electrical risers as determined by landlord to be reasonably necessary for the build-out and use of other portions of the building, no breach of the covenant of quiet enjoyment would have likely occurred. As noted by the court, a breach of the covenant of quiet enjoyment requires an intentional interference with a tenant’s full enjoyment and use of the leased premises which interference is unreasonable, unwarranted or unlawful. If the lease had included a suitable clause or provision expressly permitting the landlord to penetrate a portion of the leased space to install plumbing, ventilation, electrical risers and other systems to serve other portions of the building, no breach of the covenant of quiet enjoyment would have occurred.</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<h2 class="wp-block-heading"><span style="color: #1897ab;">AUTHOR’S NOTE</span></h2>
<p>If you are a property owner/developer planning to reconfigure a multi-tenant commercial property, or planning an adaptive reuse of commercial property encumbered with existing leases, proper due diligence requires a close examination of existing leases to confirm your rights to implement your development plan. If there is a risk of violating the covenant of quiet enjoyment, a strategy to mitigate that risk should be developed as part of the overall development plan. Otherwise, you may find yourself unable to proceed with your development plan, as existing commercial tenants enjoin implementation to your potential extreme financial detriment.</p>
</blockquote>
<p><em>Thanks for listening,</em><br /><em>R. Kymn Harp and Catherine A. Cooke</em></p>
<div class="wp-block-image">
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<h3 class="wp-block-heading"><span style="color: #1897ab;"><em>COMING UP . . .</em></span></h3>
<p>In Part 3 of this series, we will discuss <span style="color: #1897ab;"><em><strong>Constructive Eviction</strong></em></span>—including the rights and remedies available to a commercial tenant who is constructively evicted by its landlord.</p>
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<title>Commercial Landlord-Tenant Issues – PART 1 – Getting it Right</title>
<link>http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/</link>
<comments>http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 12 Mar 2015 22:37:49 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[Landlord-Tenant]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[commercial landlord]]></category>
<category><![CDATA[commercial landlord tenant]]></category>
<category><![CDATA[commercial leases]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[commercial tenants]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[enforcement actions]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[lease rights]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[rights to parking]]></category>
<category><![CDATA[what to look for]]></category>
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<description><![CDATA[In March 2015, the Illinois Institute for Continuing Legal Education (“IICLE”) published its 2015 Edition practice handbook entitled: Commercial Landlord-Tenant Practice. To provide best-practice guidance to all Illinois attorneys, IICLE recruits experienced attorneys with relevant knowledge to write each handbook […]]]></description>
<content:encoded><![CDATA[<div class="wp-block-image">
<figure class="alignleft is-resized"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="R. Kymn Harp Robbins, Salomon & Patt, Ltd." class="wp-image-1145" style="width:175px;height:245px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /></a><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="175" height="245" data-attachment-id="1051" data-permalink="http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/catherine-cooke-shareholder-at-rsp/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" data-orig-size="175,245" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D7000","caption":"","created_timestamp":"1367319064","copyright":"","focal_length":"98","iso":"125","shutter_speed":"0.008","title":"","orientation":"1"}" data-image-title="Catherine Cooke" data-image-description="" data-image-caption="<p>Catherine Cooke<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?resize=175%2C245" alt="Catherine Cook Shareholder at Robbins, Salomon & Patt, Ltd." class="wp-image-1051"/></a><figcaption class="wp-element-caption">Catherine Cooke<br /> Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p><em>In March 2015, the Illinois Institute for Continuing Legal Education (“IICLE”) published its 2015 Edition practice handbook entitled: <strong>Commercial Landlord-Tenant Practice.</strong> To provide best-practice guidance to all Illinois attorneys, IICLE recruits experienced attorneys with relevant knowledge to write each handbook chapter. For the current edition, IICLE asked R. Kymn Harp and Catherine Cooke of Robbins, Salomon & Patt, Ltd., Chicago, Illinois, to write the chapter entitled Tenant’s Duties, Rights and Remedies. We were, of course, pleased to oblige. Although each of us represent commercial landlords at least as often as we represent commercial tenants, a clear understanding of the duties, rights and remedies of commercial real estate tenants is critical when representing either side of the commercial lease transaction.</em></p>
<p><em>The following is an excerpt (slightly edited) from our chapter, Tenant’s Duties, Rights and Remedies appearing in the 2015 Edition of IICLE <strong>Commercial Landlord-Tenant Practice</strong>. We hope you find this excerpt, and the excerpts that will follow, informative and useful. Feel free to contact IICLE directly to purchase the entire volume.</em></p>
<h2 class="wp-block-heading">How Commercial Lease Issues Commonly Arise – Getting it Right</h2>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" width="1000" height="667" data-attachment-id="1839" data-permalink="http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/successfuldealrealestateleaseorhomepurchaseconceptbuyer/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-deal-Real-estate-lease-or-home-purchase.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2022 CrizzyStudio\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Successful,Deal,Real,Estate,Lease,Or,Home,Purchase,Concept,Buyer","orientation":"1"}" data-image-title="Successful,Deal,Real,Estate,Lease,Or,Home,Purchase,Concept,Buyer" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-deal-Real-estate-lease-or-home-purchase.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-deal-Real-estate-lease-or-home-purchase.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-deal-Real-estate-lease-or-home-purchase.jpg?resize=1000%2C667" alt="successful deal Real estate lease or home purchase" class="wp-image-1839" style="width:400px;height:267px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-deal-Real-estate-lease-or-home-purchase.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-deal-Real-estate-lease-or-home-purchase.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-deal-Real-estate-lease-or-home-purchase.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 1000px) 100vw, 1000px" /></figure></div>
<p>Commercial real estate leases, like virtually all documents and agreements relating to commercial real estate transactions and interests, are, to a very large extent, consistent only in their variety. In commercial real estate practice, there are few, if any, “standard form” documents or agreements. To be sure, there are provisions in commercial real estate leases that any experienced practitioner would expect to see, and there are some generally applicable legal concepts that apply, but the variety of issues that may arise — and the language used in each commercial lease — will directly and materially impact the “duties, rights, and remedies” of a tenant under any commercial lease.</p>
<p>The best answer to most questions about what are the rights, duties, and remedies of a tenant under a commercial real estate lease is “It depends.” What does it depend on? It depends primarily on what the parties to the lease — the landlord and tenant — intended, as (presumably) reflected by the express terms and conditions of the lease. However, two common challenges frequently exist, and they apply equally to commercial tenants and commercial landlords. They are (a) poorly written lease provisions that do not clearly and definitively set forth the intention of the landlord and tenant in a way that cannot reasonably be misunderstood and (b) inclusion of perceived “standard boilerplate” provisions in a lease without fully understanding their legal or practical affect on the leased premises, the parties, and the greater project of which the leased premises may be a part. When the intent of the parties is not abundantly clear, a court may find the answer implied by the facts and circumstances.</p>
<h2 class="wp-block-heading">GENERAL LEASE PRINCIPLES AND RULES OF CONSTRUCTION</h2>
<p>A “lease” is generally described as a contract for exclusive possession of land and improvements for a term of years or other duration, usually for a specified rent or other compensation. <em>Urban Investment & Development Co. v. Maurice L. Rothschild & Co</em>., 25 Ill.App.3d 546, 323 N.E.2d 588, 592 (1st Dist. 1975); <em>Feeley v. Michigan Avenue National Bank</em>, 141 Ill.App.3d 187, 490 N.E.2d 15, 18, 141 Ill.Dec. 187 (1st Dist. 1986).</p>
<p>In determining the duties, rights, and remedies of a tenant under a commercial lease in Illinois, the general rules of contract construction will apply. <em>Walgreen Co. v. American National Bank & Trust Company of Chicago</em>, 4 Ill.App.3d 549, 281 N.E.2d 462, 465 (1st Dist. 1972); <em>Feeley, supra</em>, 490 N.E.2d at 18; <em>Chicago Title & Trust Co. v. Southland Corp</em>., 111 Ill.App.3d 67, 443 N.E.2d 294, 297, 66 Ill.Dec. 611 (1st Dist. 1982). Interpretation of a lease is a question of law when the terms are plain and unambiguous. <em>Madigan Bros. v. Melrose Shopping Center Co</em>., 123 Ill.App.3d 851, 463 N.E.2d 824, 828, 79 Ill.Dec. 270 (1st Dist. 1984).</p>
<p>“An ambiguous contract is one capable of being understood in more senses than one; an agreement obscure in meaning, through indefiniteness of expression, or having a double meaning.” <em>Advertising Checking Bureau, Inc. v. Canal-Randolph Associates</em>, 101 Ill.App.3d 140, 427 N.E.2d 1039, 1042, 56 Ill.Dec. 634 (1st Dist. 1991), quoting <em>First National Bank of Chicago v. Victor Comptometer Corp</em>., 123 Ill.App.2d 335, 260 N.E.2d 99, 102 (1st Dist. 1970). However, the mere fact that the parties to a lease “dispute” the meaning of a lease provision and assign conflicting interpretations does not render the provision “ambiguous.” <em>McGann v. Murry,</em> 75 Ill.App.3d 697, 393 N.E.2d 1339, 1342 – 1343, 31 Ill.Dec. 32 (3d Dist. 1979); <em>St. George Chicago, Inc. v. George J. Murges & Associates, Ltd</em>., 296 Ill.App.3d 285, 695 N.E.2d 503, 506 – 507, 230 Ill.Dec. 1013 (1st Dist. 1998); F<em>ord v. Dovenmuehle Mortgage, Inc</em>., 273 Ill.App.3d 240, 651 N.E.2d 751, 745 – 755, 209 Ill.Dec. 573 (1st Dist. 1995). Whether ambiguity exists is a question of law for the court. Advertising Checking Bureau, supra, 427 N.E.2d at 1042; Pioneer Trust & Savings Bank v. Lucky Stores, Inc., 91 Ill.App.3d 573, 414 N.E.2d 1152, 1154, 47 Ill.Dec. 36 (1st Dist. 1980).</p>
<p>It is well-settled in Illinois that, when construing a written lease, the court must give words their commonly accepted meaning and must construe every part with reference to all other portions of the lease “so that every part may stand, if possible, and no part of it, either in words or sentences, shall be regarded as superfluous or void if it can be prevented.” <em>Kokenes v. Cities Service Oil Co</em>., 24 Ill.App.3d 483, 321 N.E.2d 338, 340 (1st Dist. 1974), quoting <em>Szulerecki v. Oppenheimer,</em> 283 Ill. 525, 119 N.E. 643, 646 (1918). See also <em>Southland, supra</em>, 443 N.E.2d at 297.</p>
<p>In construing a lease, the instrument is to be considered as a whole and the primary object is to derive the intent of the parties. However, a contract must be enforced as written, and when the terms of a lease are clear and unambiguous, they will be given their natural and ordinary meaning. <em>Gerardi v. Vaal</em>, 169 Ill.App.3d 818, 523 N.E.2d 1327, 1331, 120 Ill.Dec. 416 (3d Dist. 1988).</p>
<p>The foregoing sounds pretty straightforward, but unless attorneys and their clients draft leases with a comprehensive understanding of the interplay between particularly drafted provisions and every other part of the lease — including so-called “standard boilerplate” provisions — they may find themselves surprised by what they have “agreed to.”</p>
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<h3 class="wp-block-heading">PRACTICE POINTER</h3>
<p> Drafting a commercial real estate lease is similar to drafting any other commercial document, except that the meaning and intent of contractual lease provisions are colored by an extensive body of underlying real property law that has developed over the centuries.</p>
<p>A commercial real estate lease should say what the parties mean and mean what it says. Words have meaning; phrases have meaning; each provision has meaning. The interplay of words, phrases, and all provisions in a lease will help determine the meaning of each other word, phrase, or provision. See <em>Kokenes, supra</em>, 321 N.E.2d at 340; <em>Szulerecki, supra</em>, 119 N.E. at 646.</p>
<h3 class="wp-block-heading">PRACTICE POINTER</h3>
<p> Be sure the words and phrases you use mean what your client believes they mean before proceeding.</p>
<p> If there are provisions of a commercial real estate lease you do not fully understand — including provisions you believe are “standard boilerplate” provisions — you need to learn what they mean and how they affect other parts of the lease, and your client’s rights, duties and remedies, before advising your client to proceed.</p>
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<p>The following discussion highlights some areas in which the rights, duties, and remedies of the commercial real estate tenant (and, by mirror image, the landlord) appear not to have been what one or the other party thought they were.</p>
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<h2 class="wp-block-heading">LEASEHOLD EASEMENTS</h2>
<p>An easement creates an interest in land and must, therefore, be founded on a deed or other writing, or on prescription, which presumes a previous grant. <em>Brunotte v. De Witt</em>, 360 Ill. 518, 196 N.E. 489, 495 (1935); <em>The Fair v. Evergreen Park Shopping Center of Delaware</em>, 4 Ill.App.2d 454, 124 N.E.2d 649, 654 (1st Dist. 1954). It may be created by covenant or agreement as well as by grant, for such agreements are in legal effect grants. <em>Chicago Title & Trust Co. v. Wabash-Randolph Corp</em>., 384 Ill. 78, 51 N.E.2d 132, 136 (1943); <em>D.M. Goodwillie Co. v. Commonwealth Electric Co.</em>, 241 Ill. 42, 89 N.E. 272, 283 (1909); <em>The Fair, supra</em>, 124 N.E.2d at 654.</p>
<p>“No particular words are necessary to constitute a grant, and any words which clearly show the intention to give an easement, which is by law grantable, are sufficient to effect that purpose.” <em>Wabash-Randolph, supra</em>, 51 N.E.2d at 136. See also <em>The Fair, supra</em>, 124 N.E.2d at 654. The agreement must be construed so as to carry out the plain intent of the parties. <em>Barber v. Allen</em>, 212 Ill. 125, 72 N.E. 33, 36 (1904).</p>
<h3 class="wp-block-heading">A. Parking</h3>
<p>Parking rights are fertile ground for disputes between commercial tenants and landlords. A significant source of litigation is imprecise drafting, which can result in the creation of implied easements having a scope larger than the developer intended.</p>
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<p>As illustrated in the cases discussed below, the law in Illinois is that when the landlord makes no reservation of the right to alter the common areas in the lease, and when the site plan attached to the lease accurately and clearly delineates the common areas, the tenant has an easement in the particular configuration of common space delineated by the lease and plats.</p>
<h4 class="wp-block-heading">1. Shopping Center Parking</h4>
<p>– In <em>Madigan Bros. v. Melrose Shopping Center Co</em>., 123 Ill.App.3d 851, 463 N.E.2d 824, 79 Ill.Dec. 270 (1st Dist. 1984), a shopping center tenant sought a permanent injunction to prevent a landlord from constructing a restaurant or other building in the shopping center’s parking area, without consent of the tenant.</p>
<p>The lease included a provision that stated:</p>
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<p>this lease includes the non-exclusive right to Tenant and its agents, servants, successors, assigns, licensees, invitees, customers, suppliers and patrons to use and enjoy throughout the term of this lease the “common areas” of the Shopping Center, to-wit, the driveways, entrances, exits, roadways, parking areas, sidewalks, malls and other features and facilities provided for the general uses and purposes of the Shopping Center. 463 N.E.2d at 826.</p>
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<p>The lease further provided: “The location and arrangement of said parking areas, sidewalks, pedestrian malls, entrances and exits and roadways will substantially conform with the plat attached hereto and shall be kept open at all times<em>.</em>” <em>Id.</em></p>
<p>Additionally, the lease provided that the landlord would provide, operate, manage, and maintain all parking areas “together with any enlargement or rearrangement thereof required by enlarging the Shopping Center” and provided that the tenant shall “have, hold and enjoy the demised premises and the entire . . . building together with all other improvements and all easements, rights and appurtenances which are a part of the demised premises during the full term the lease and any extensions thereof, without hindrance or ejection by any persons lawfully claiming under Landlord.” <em>Id.</em></p>
<p>Attached to the lease as exhibits were (a) a plot plan of the shopping center showing the leased space; (b) a legal description of the shopping center; and (c) an exhibit showing “the number and area of existing and proposed automobile parking spaces in the Shopping Center together with existing and proposed driveways, entrances, exits and roadways.” Id. The third exhibit was subsequently amended to show the exact location of the parking area and indicate the specific number of parking spaces being provided in the shopping center. The lease was also amended to permit the landlord to construct a bank in the parking area in return for the landlord waiving a restriction against the tenant opening a new store within four miles of the shopping center.</p>
<p>The tenant sought to enjoin the landlord’s construction of the restaurant or other buildings in the shopping center’s parking area, claiming the lease created for the benefit of the tenant a nonexclusive easement in and to the shopping center parking areas. The landlord denied that the tenant had any easement rights under the lease and otherwise denied interfering with any of tenant’s rights under its lease. The landlord claimed that the landlord had reserved the right to make changes to the location or configuration of the parking areas and that the lease required only that the landlord maintain the specified ratio of parking spaces to leasable area, which would be done under the landlord’s construction plan.</p>
<p>The court held that the lease was clear and unambiguous in granting the tenant the use and enjoyment of the shopping center’s parking facilities. The court stated that “[t]he principal function of a court in construing a written contract is to discern and to give effect to the intention of the parties as expressed in the language of the document when read as a whole” and that “[w]hen the terms of a contract are clear and unambiguous, they must be enforced.” 463 N.E.2d at 828.</p>
<p>After considering the documents presented, the court concluded that the intent of the parties was to grant the shopping center tenants an easement in the parking areas for ingress, egress, and parking, as set out in the site plan, noting, “[i]t is the law in Illinois that where no reservation by the landlord of the right to alter the common areas is made in the lease and where the site plan attached to the lease accurately and precisely delineates the common areas, the tenant has an easement to the particular configuration of common space delineated by the lease and attached plats.” Id.</p>
<p>– In <em>Walgreen Co. v. America National Bank & Trust Company of Chicago,</em> 4 Ill.App.3d 549, 281 N.E.2d 462 (1st Dist. 1972), Walgreens was a tenant in the Village Green Shopping Center in Park Ridge. Walgreens filed an action to enjoin the landlord and Fotomat from permitting or causing construction of a structure of any kind in the parking area. In particular, Walgreens sought to enjoin the erection of an approximately 40-square-foot kiosk within an area comprising roughly three parking spaces that was to be operated by Fotomat for the sale of photographic equipment and supplies and for film processing. The trial court granted the injunction requested by Walgreens, and the landlord appealed. The principal issue on appeal was whether the landlord breached its lease with Walgreens by leasing an area in the parking lot of the shopping center to Fotomat for construction of a kiosk.</p>
<p>Article 7(a) of the lease to Walgreens provided in part as follows:</p>
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<p>It is an express condition of this lease that at all times during the continuance of this lease, Landlord shall provide, maintain, repair, adequately light when necessary during Tenant’s business hours, clean, supervise and keep available the Parking Areas as shown on the attached plan (which Parking Areas shall contain at least 150,000 square feet and shall provide for the parking of at least 400 automobiles), and also adequate service areas, pedestrian malls, sidewalks, curbs, roadways and other facilities appurtenant thereto. Said Parking Areas shall be for the free and exclusive use of customers, invitees and employees of Tenant and of other occupants of said Shopping Center, shall have suitable automobile entrances and exits from and to adjacent streets and roads, shall be level and shall be suitably paved and pitched to streets for surface water run off. 281 N.E.2d at 465.</p>
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<p>The lease provided that Walgreens would pay its proportionate share of costs for operating and maintaining the parking facilities in proportion to the relative square footage of the Walgreens to the total area of all retail facilities in the shopping center. Also, Walgreens was not obligated to open its store or pay rent until “[a]ll the parking and other facilities described in Article 7 have been completed, paved and lighted and are available for use.”<em> Id</em>.</p>
<p>The Fotomat kiosk was to be placed in a part of the shopping center designated on the plan attached to the Walgreens lease as a parking lot. It was designed to serve customers who drove up on either side of it in a motor vehicle. The kiosk was to have dimensions of 9 feet × 4½ feet, eliminating three parking spaces. Even with the elimination of the three parking spaces, the parking lot would still have in excess of 150,000 square feet and sufficient space for more than 400 parking spaces.</p>
<p>The landlord claimed that the plot plan attached to the Walgreens lease was only descriptive and illustrative, since Article 7(a), by stating “which Parking Areas shall contain at least 150,000 square feet and shall [provide for the parking of] at least 400 automobiles,” set forth the landlord’s contractual obligation. 281 N.E.2d at 466. The landlord argued that there was no other way to give meaning and effect to this language in Article 7(a) that specified the minimum square footage of the parking area and minimum number of parking spaces.</p>
<p>The court held that the rules of contract construction apply to written leases and that</p>
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<p>(t)he principal function of a court in construing a written agreement is to discern and to give effect to the intention of the parties as expressed in the language of the document when read as a whole. . . . A court cannot remake a contract and give a litigant a better bargain than he himself was satisfied to make; and when the terms of a contract are clear and unambiguous, they must be enforced. (Citations omitted.) <em>Id</em>.</p>
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<p>The court noted that “the lessor foresaw the possibility of a need to expand the retail facilities and as a part of the plot plan reserved the right to rearrange interior walls of one of the buildings in the shopping center, and in addition it reserved the right to expand the retail establishments into two specified areas. No provision, however, was made for diminishing the designated number of parking lots.” 281 N.E.2d at 467.</p>
<p>The court found from the language in the lease and the attached plot plan that the lease was clear and unambiguous. “The plot plan set forth with exactitude the location of the retail facilities, the pedestrian mall, the sidewalks, the roadways, the service drives, the parking areas, and 463 parking places.” Id.</p>
<p>The lease provided under Article 7(b) that Walgreens was to pay its proportionate share of costs to operate and maintain the parking lots and under Article 7(a) that the customers, invitees, and employees of Walgreens and other shopping center tenants were to be given free and exclusive use of the parking areas. After considering the evidence presented, the court concluded that the lease granted Walgreens and other tenants in the shopping center “an easement in the parking areas for ingress, egress, and parking as set out in the plan” and upheld the injunction against constructing the Fotomat kiosk. Id.</p>
<h4 class="wp-block-heading">2. Office Building Parking</h4>
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<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstime_m_5364405.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="150" data-attachment-id="512" data-permalink="http://harp-onthis.com/section-1031-like-kind-exchanges-part-1-of-3/httpwww-dreamstime-comroyalty-free-stock-photo-residential-commercial-buildings-image5364405/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstime_m_5364405.jpg?fit=3000%2C1500" data-orig-size="3000,1500" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"(c) Ptoone | Dreamstime.com","focal_length":"0","iso":"0","shutter_speed":"0","title":"http:\/\/www.dreamstime.com\/royalty-free-stock-photo-residential-commercial-buildings-image5364405"}" data-image-title="http://www.dreamstime.com/royalty-free-stock-photo-residential-commercial-buildings-image5364405" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstime_m_5364405.jpg?fit=300%2C150" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstime_m_5364405.jpg?fit=1024%2C512" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstime_m_5364405.jpg?resize=300%2C150" alt="http://www.dreamstime.com/royalty-free-stock-photo-residential-commercial-buildings-image5364405" class="wp-image-512" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstime_m_5364405.jpg?resize=300%2C150 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstime_m_5364405.jpg?resize=1024%2C512 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstime_m_5364405.jpg?resize=500%2C250 500w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstime_m_5364405.jpg?w=2000 2000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstime_m_5364405.jpg?w=3000 3000w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>In <em>Mutual of Omaha Life Insurance Co. v. Executive Plaza, Inc.</em>, 99 Ill.App.3d 190, 425 N.E.2d 503, 54 Ill.Dec. 638 (2d Dist. 1981), the tenants in a multistory commercial office building sued the manager and owner for breach of parking rights provisions in a lease. At the time of execution of the lease, a parking lot was provided adjacent to the office building, consisting of approximately 148 spaces for use by all tenants in the building and their clients. The parking lot had five points of ingress and egress: two on North Court Street (a two-way street) and one each on Park Street and Locust Street (two-way streets) and North Church Street (a one-way street). Parking was available to the general public on three of the five streets.</p>
<p>Subsequently, the landlord entered into a lease with Coopers and Lybrand (C & L) for 27 percent of the total rentable area. As part of the C & L lease, the landlord granted C & L employees exclusive access and use of 32 parking spaces in the previously existing common parking lot and an additional 18 spaces in a newly constructed parking lot on Locust Street across from the premises. The restricted parking areas were cordoned off by chains, and access to the restricted parking areas was controlled by plastic pass cards inserted into a gate mechanism to raise a gate. The access gate to the 32 restricted parking spaces in the former common lot was one of the two access points on North Court Street previously providing common access to the common parking lot.</p>
<p>The trial court ruled that the lease had been breached by partially restricting access to parking that was required under the lease to be available to all tenants, but concluded that removal of the parking restriction would not solve the claimed harm of inconvenience, that no direct economic or money loss to tenants had been proved, and that injunctive relief was not appropriate under these circumstances. The tenants appealed.</p>
<p>The appellate court reversed the ruling of the trial court and held: “The rule in Illinois is now clearly that language such as we have in the lease in question creates an easement appurtenant over a parking area in a shopping center, and this is the law elsewhere as well.” 425 N.E.2d at 507. Although the parties did not cite any authorities that specifically applied the rules that have developed in the shopping center cases (see §9.5 above) to parking appurtenant to an office building, the court determined that there was “no logical basis for having one set of rules for shopping centers and a different set of rules for other contractual relationships.”<em> Id</em>., quoting <em>Crest Commercial, Inc. v. Union-Hall, Inc</em>., 104 Ill.App.2d 110, 118, 243 N.E.2d 652, 657 (2d Dist. 1968).</p>
<p>The court noted:</p>
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<p>It might, of course, be argued that the furnishing of customer parking is absolutely essential to the tenants’ business in a shopping center whereas parking in connection with the less competitive setting of an office building a mere convenience. . . However, here the tenants have been found to have an easement appurtenant by express contract and from that contractual relationship it follows, in our opinion, that the use of the appurtenant parking areas may not be reduced or substantially altered during the term of the lease. (Citation omitted.) Id.</p>
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<p>The court went on to state that “the grant of an easement appurtenant as found by the trial court is a proper subject of mandatory injunction even if only minor interference is shown.” 425 N.E.2d at 507 – 508, citing <em>Ogilby v. Donaldson’s Floors, Inc</em>., 13 Ill.2d 305, 148 N.E.2d 758, 760 – 761 (1958). The court noted that to show irreparable injury, a party is not required to show that the injury is beyond the possibility of compensation, nor must the injury be very great, and “the fact that no actual damages could be proved and the jury could award only nominal damages ‘often furnishes the very best reason why a court of equity should interfere.’ ” 425 N.E.2d at 508, quoting <em>Newell v. Sass</em>, 142 Ill. 104, 31 N.E. 176, 180 (1892).</p>
<h3 class="wp-block-heading">PRACTICE POINTER</h3>
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<p> If a commercial lease describes available parking — and especially if it makes reference to a plot plan/site plan that delineates the location of buildings, roads, parking, curb cuts, etc. — and the landlord thereafter attempts to alter the parking or access rights without a clear and unequivocal right to do so, the tenant will have a legal right to assert a breach of lease and obtain a mandatory injunction to prevent the change, or require that the <em>status quo ante</em> be restored. For the landlord to avoid this outcome, it is important to provide in the lease an express reservation of the right to alter existing or planned parking at the landlord’s discretion, if that is the landlord’s intent.</p>
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<h4 class="wp-block-heading">B. Obstruction and Reduction of Passageways</h4>
<p>Construction of a glass bay entrance to a tenant’s store in a shopping center that extended five feet beyond the building lines depicted on a site plan attached to other tenant leases, and which disrupted sightlines to adjacent stores, was found to constitute an unpermitted obstruction or reduction of a private passageway created by the site plan. <em>The Fair v. Evergreen Park Shopping Plaza of Delaware, Inc</em>., 4 Ill.App.2d 454, 124 N.E.2d 649, 652 (1st Dist. 1954).</p>
<p>The court found that when a right of passageway is granted over a strip of land having definite boundaries, the right extends over the full width of the tract described. The Fair (a major tenant facing the mall in the shopping center) was entitled to use the entire mall. The court concluded that the injury was a continuing one, and because there was no adequate remedy at law, “the remedy for the obstruction or reduction of a private passageway is by injunction.” 124 N.E.2d at 656, citing <em>Carpenter v. Capital Electric Co.</em>, 178 Ill. 29, 52 N.E. 973, 975 (1899).</p>
<h4 class="wp-block-heading">C. Building Corridors</h4>
<p>As with parking rights, a floor plan attached to a lease may establish an implied easement in favor of tenants that would bar the landlord from relocating corridors reflected on the floor plan; however, express language in the lease clearly permitting a landlord to relocate the corridors will overcome any contrary implication arising from the floor plan. <em>Advertising Checking Bureau, Inc. v. Canal-Randolph Associates,</em> 101 Ill.App.3d 140, 427 N.E.2d 1039, 1042 – 1043, 56 Ill.Dec. 634 (1st Dist. 1991).</p>
<div class="wp-block-image">
<figure class="aligncenter"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="109" data-attachment-id="283" data-permalink="http://harp-onthis.com/about/rsp_logofull_2pms/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":""}" data-image-title="RSP_LogoFull_2PMS" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=963%2C350" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=300%2C109" alt="RSP_LogoFull_2PMS" class="wp-image-283" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=500%2C181 500w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p><em>COMING UP . . .<br /></em></p>
<p>We hope you have found the foregoing discussion useful. Coming up, in <strong>Part 2</strong> of this series, we will discuss the often misunderstood leasehold “<em><strong>Covenant of Quite Enjoyment”</strong></em> in the context of commercial leases.</p>
]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">1052</post-id> </item>
<item>
<title>POP QUIZ! — Commercial Real Estate Due Diligence</title>
<link>http://harp-onthis.com/pop-quiz-commercial-real-estate-due-diligence/</link>
<comments>http://harp-onthis.com/pop-quiz-commercial-real-estate-due-diligence/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Fri, 13 Feb 2015 00:06:29 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Chicago]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[property]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1033</guid>
<description><![CDATA[I read once that if you took all the lawyers in the world and laid them end to end along the equator — it would be a good idea to leave them there. That’s what I read. What do you […]]]></description>
<content:encoded><![CDATA[<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="R. Kymn Harp Robbins, Salomon & Patt, Ltd." class="wp-image-1145" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /></a><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p>I read once that if you took all the lawyers in the world and laid them end to end along the equator — it would be a good idea to leave them there.</p>
<p>That’s what I read. What do you suppose that means?</p>
<p>I have written before about the need to exercise due diligence when purchasing commercial real estate. The need to investigate, before Closing, every significant aspect of the property you are acquiring. The importance of evaluating each commercial real estate transaction with a mindset that once the Closing occurs, there is no going back. The Seller has your money and is gone. If post-Closing problems arise, Seller’s contract representations and warranties will, at best, mean expensive litigation. CAVEAT EMPTOR! [“<em>Let the buyer beware!</em>”]
<p>Paying extra attention at the beginning of a commercial real estate transaction to “get it right” can save tens of thousands of dollars versus when a deal goes bad. It’s like the old <em>Fram</em>® oil filter slogan during the 1970’s: “<em>You can pay me now – or pay me later</em>”. In commercial real estate, however, “later” may be too late.</p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1845" data-permalink="http://harp-onthis.com/pop-quiz-commercial-real-estate-due-diligence/entrepreneurs-meet-the-broker-and-they-hand-shake/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="entrepreneurs-meet-the-broker-and-They-Hand-Shake" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?resize=400%2C267" alt="entrepreneurs meet the broker and they hand shake" class="wp-image-1845" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/entrepreneurs-meet-the-broker-and-They-Hand-Shake.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>Buying commercial real estate is NOT like buying a home. It is not. It is not. It is NOT.</p>
<p>In Illinois, and many other states, virtually every residential real estate closing requires a lawyer for the buyer and a lawyer for the seller. This is probably smart. It is good consumer protection.</p>
<p>The “problem” this causes, however, is that every lawyer handling residential real estate transactions considers himself or herself a “real estate lawyer”, capable of handling any real estate transaction that may arise.</p>
<p>We learned in law school that there are only two kinds of property: real estate and personal property. Therefore – we intuit – if we are competent to handle a residential real estate closing, we must be competent to handle a commercial real estate closing. They are each “real estate”, right?</p>
<p><em>ANSWER</em>: Yes, they are each real estate. No, they are not the same.</p>
<p>The legal issues and risks in a commercial real estate transaction are remarkably different from the legal issues and risks in a residential real estate transaction. Most are not even remotely similar. Attorneys concentrating their practice handling residential real estate closings do not face the same issues as attorneys concentrating their practice in commercial real estate.</p>
<p>It is a matter of experience. You either know the issues and risks inherent in commercial real estate transactions – and know how to deal with them – or you don’t.</p>
<p>A key point to remember is that the myriad consumer protection laws that protect residential home buyers have no application to – and provide no protection for – buyers of commercial real estate.</p>
<p>Competent commercial real estate practice requires focused and concentrated investigation of all issues material to the transaction by someone who knows what they are looking for. In short, it requires the experienced exercise of <em>due diligence</em>.</p>
<p>I admit – the exercise of due diligence is not cheap, but the failure to exercise due diligence can create a financial disaster for the commercial real estate investor. Don’t be “<em>penny wise and pound foolish</em>”. If you are buying a home, hire an attorney who regularly represents home buyers. If you are buying commercial real estate, hire an attorney who regularly represents commercial real estate buyers.</p>
<p>Years ago I stopped handling residential real estate transactions. As an active commercial real estate attorney, even I hire residential real estate counsel for my own home purchases. I do that because residential real estate practice is fundamentally different from commercial real estate.</p>
<p>Maybe I do <em>harp</em> on the need for competent counsel experienced in commercial real estate transactions. I genuinely believe it. I believe it is essential. I believe if you are going to invest in commercial real estate, you must apply your critical thinking skills and be smart.</p>
<h2 class="wp-block-heading"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1041" data-permalink="http://harp-onthis.com/illinois-llcs-the-asset-protection-advantage/rsp_logohd-3/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"}" data-image-title="RSP_LogoHD (3)" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" class=" wp-image-1041 aligncenter" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=250%2C91" alt="RSP_LogoHD (3)" width="250" height="91" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?w=963 963w" sizes="auto, (max-width: 250px) 100vw, 250px" /></a></h2>
<h2 class="wp-block-heading"> </h2>
<h2 class="wp-block-heading"><span style="color: #008080;">POP QUIZ:</span></h2>
<p>Here’s a simple test of YOUR critical thinking skills:</p>
<p>Please read the following Scenarios and answer the questions TRUE or FALSE: </p>
<span id="more-1033"></span>
<p><em><strong>Scenario No. 1:</strong></em> It’s Valentine’s Day. You are in hot pursuit of the love of your life. A few weeks ago, she confided in you that all she ever dreamed of for Valentine’s Day was that her lover would show up at her door, dressed in a white tuxedo with tails and a top hat, and present<br />her with a beautiful bouquet of flowers. You’ve rented the tuxedo, but now you are concerned about how much money you are spending.</p>
<p><strong>TRUE OR FALSE?:</strong> Since flowers are pretty much all the same, it is OK for you to skip the roses and show up with a bouquet of fresh yellow dandelions.</p>
<p><em><strong>Scenario No. 2:</strong></em> For several years your eyesight has deteriorated to the point where you can barely see your alarm clock. You are now considering corrective eye surgery so you won’t need glasses. Your sister-in-law had corrective eye surgery and has had spectacular results. She recommends her eye surgeon, but mentions the cost is about $5,700 for both eyes and that the surgery is not covered by insurance. A few years ago, you had surgery to correct your hemorrhoids and it cost you only eight hundred bucks.</p>
<p><strong>TRUE OR FALSE?:</strong> Since surgeons all went to medical school and are all medical doctors, you are being frugal and wise by asking the surgeon who performed your hemorrhoid surgery to perform your corrective eye surgery.</p>
<p><em><strong>Scenario No. 3: </strong></em> Several years ago, when you first got married, you asked a former classmate who is a lawyer to represent you in the purchase of your town home. The cost was only $375. A year later, you started a family and decided you needed a Will. The same attorney prepared Wills for you and your spouse for a total cost of $700. You started your own business and your attorney friend formed a corporation for you and charged you only $600 plus the cost of the corporate minute book. Years later, when your son was arrested for misdemeanor reckless driving, your attorney friend handled the criminal case and got your son off with supervision for only $1,500.</p>
<p>Your business has been successful and you have built a pretty sizable nest egg, but you are tired of working for every dime and want to try investing in real estate. You have your eye on a strip shopping center. It includes a grocery store, bank, hardware store, dry cleaners (on a month to month tenancy), a couple of fast food restaurants, a gift shop, dental office, bowling alley (with a lease about to expire), and wraps behind a gas station/mini-mart on the corner. The purchase price is $8,000,000, but the net operating income looks pretty good. You figure if you turn the bowling alley into a full service restaurant/banquet facility, and convert the dry cleaners into a 24-hour coin laundry, the net operating income will increase and the shopping center will turn into a spectacular investment. You plan to pull together much of your life savings and put down $2,000,000 to buy this strip shopping center, borrowing the balance of $6,000,000. You remember that your lawyer friend handled the purchase of your home several years ago, so you know he handles real estate.</p>
<p><strong>TRUE OR FALSE?:</strong> Commercial real estate is the same as residential real estate [Hey, its all dirt, isn’t it (?)], so you are being a shrewd businessperson by hiring your lawyer friend who will charge much less than a lawyer who handles shopping center purchases several time a year. [What is this “due diligence” stuff anyway?]
<h2 class="wp-block-heading"><span style="color: #008080;">ANSWERS:</span></h2>
<p>If you answered <em>TRUE</em> for any of the foregoing Scenarios . . .</p>
<p>…Well …</p>
<p>… you may NOT be quite ready for prime time. Perhaps you should stop and reflect a while on the course your life has taken.</p>
<p>If, on the other hand, you understand that the answer to each of the foregoing questions is <em>FALSE</em>, I am available to help you in <em>Scenario No. 3</em>.</p>
<p>For <em>Scenario No. 2</em>, you should follow your sister-in-law’s suggestion and contact her eye surgeon, or some other eye surgeon with equal skill.</p>
<p>For <em>Scenario No. 1</em>, you are on your own. [But, if you answered TRUE for Scenario No. 1, you may be FOREVER on you own.]
<p>Critical thinking skills are vital. Use them when dealing with Commercial Real Estate.</p>
<p><em>Thanks for listening . . . </em><br /><em>Kymn</em></p>
<p>P.S. Please excuse me for <em>harping</em> on due diligence. ~ It is my birthright. ~ With the last name “Harp”, I am entitled to <em>harp</em> on anything I wish.</p>
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<post-id xmlns="com-wordpress:feed-additions:1">1033</post-id> </item>
<item>
<title>STRATEGIES FOR ASSESSING COMMERCIAL TENANT CREDIT</title>
<link>http://harp-onthis.com/strategies-assessing-commercial-tenant-credit/</link>
<comments>http://harp-onthis.com/strategies-assessing-commercial-tenant-credit/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 22 Jan 2015 21:47:43 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[Chicago]]></category>
<category><![CDATA[commercial leasing]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[enforcement actions]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[landlord concerns]]></category>
<category><![CDATA[leasing]]></category>
<category><![CDATA[tenant credit]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1024</guid>
<description><![CDATA[GUEST BLOG BY DAVID RESNICK of ROBBINS, SALOMON & PATT, LTD. When considering a lease, tenants are usually focused on the location, size and quality of the leased space, and perform some minimal diligence on the landlord and property manager […]]]></description>
<content:encoded><![CDATA[<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/01/Resnick_low_res_C_CSC2789.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="175" height="219" data-attachment-id="1023" data-permalink="http://harp-onthis.com/strategies-assessing-commercial-tenant-credit/resnick_low_res_c_csc2789/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/01/Resnick_low_res_C_CSC2789.jpg?fit=175%2C219" data-orig-size="175,219" data-comments-opened="1" data-image-meta="{"aperture":"8","credit":"","camera":"NIKON D7000","caption":"","created_timestamp":"1367315896","copyright":"","focal_length":"92","iso":"125","shutter_speed":"0.01","title":"","orientation":"1"}" data-image-title="Resnick_low_res_C_CSC2789" data-image-description="" data-image-caption="<p>David Resnick, Attorney<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/01/Resnick_low_res_C_CSC2789.jpg?fit=175%2C219" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/01/Resnick_low_res_C_CSC2789.jpg?fit=175%2C219" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/01/Resnick_low_res_C_CSC2789.jpg?resize=175%2C219" alt="David Resnick, Attorney Robbins, Salomon & Patt, Ltd." class="wp-image-1023"/></a><figcaption class="wp-element-caption">David Resnick, Attorney<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<h3 class="wp-block-heading"><em>GUEST BLOG BY DAVID RESNICK of ROBBINS, SALOMON & PATT, LTD.</em></h3>
<p>When considering a lease, tenants are usually focused on the location, size and quality of the leased space, and perform some minimal diligence on the landlord and property manager to ensure fair treatment over the course of the term. Landlords have a more difficult task,however. A prospective tenant, and most importantly, that tenant’s ability to pay rent, is often unknown to the landlord. In recent years, real estate professionals have witnessed expansion in the array of users of commercial space and at the same time, property owners have been compelled to seek out new types of tenants. Increasing numbers of start-ups and new ventures are seeking to lease space, many of which are backed by various types of equity financing. As a result of these changes, landlords should be particularly vigilant in understanding how their tenants make money, as well as the financial identities of the parties backstopping the obligations of those tenants.</p>
<h2 class="wp-block-heading">Analyze Tenant Credit</h2>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1847" data-permalink="http://harp-onthis.com/strategies-assessing-commercial-tenant-credit/businessmandoingpaperworkathomereadingfinancialreportlearn/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/reviewing-taxes.jpg?fit=1000%2C666" data-orig-size="1000,666" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2022 fizkes\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Business,Man,Doing,Paperwork,At,Home,,Reading,Financial,Report,,Learn","orientation":"1"}" data-image-title="Business,Man,Doing,Paperwork,At,Home,,Reading,Financial,Report,,Learn" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/reviewing-taxes.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/reviewing-taxes.jpg?fit=1000%2C666" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/reviewing-taxes.jpg?resize=400%2C267" alt="reviewing taxes" class="wp-image-1847" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/reviewing-taxes.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/reviewing-taxes.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/reviewing-taxes.jpg?resize=768%2C511 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>Landlords should always analyze tenant credit in the context of the lease. After all, the success of leased real estate, as well as the property owner’s ability to borrow against that asset, is dependent upon the stability of its tenants. While rent is the primary economic factor in any lease transaction, other factors such as term (including rights of extension), area of the premises (including rights of expansion and rights of first refusal on additional space) and the scope of tenant improvements create the platform upon which a tenant’s credit can be evaluated. For example, substantial build-out (regardless of who pays for it) that may inhibit the re-letting the space following a default. Therefore, landlords should be mindful of the tenant’s capacity to pay its construction obligations, which capacity is usually encapsulated in the tenant’s credit and litigation history.</p>
<p>A proper underwriting of a tenant’s credit requires a thorough understanding of that tenant’s business. A prudent landlord will pay attention not only to the tenant’s sources of revenue, but to the market upon which the tenant relies and the business plan upon which the tenant charts its future success. What are the contours of the business model? Is the revenue sustainable? What is the plan for future growth? Has the tenant gone through restructuring or been forced to lay off personnel? Landlords can avoid doing business with troubled or unstable tenants by performing background, lien and litigation searches on the tenant parties as part of the underwriting process. This kind of diligence can usually be completed in a short time-frame at a reasonable cost, and may save substantial time and money if the landlord is forced to evict a tenant it should have known to be at increased risk of default.</p>
<p>Technology has given rise to new products which enhance the process of underwriting tenant credit. For example, the Chicago firm (RE)Meter has created the first “credit score” for commercial tenants, which captures and synthesizes proposed lease transaction terms and basic tenant financial information with exclusive data maintained by a number of federal agencies, including the U.S. Census Bureau, the Department of Labor and the Internal Revenue Service ((RE)Meter is the first firm to access IRS information in this context). The end product, called the TIL Report, can be completed in a mere 15 minutes and offers landlords a sector- and market-specific analysis of its prospective tenants, reflecting a number of detailed metrics including growth trends, profitability and rent per employee. Innovations like these have altered the landscape of tenant underwriting and will enable landlords to make more prudent decisions when marketing space and assessing the risk of potential tenants.</p>
<h2 class="wp-block-heading">Tenant Credit Enhancements</h2>
<p>Conventionally, several mechanisms exist to enhance the credit of a prospective tenant who fails on its own to meet the underwriting criteria of the landlord. The first and foremost of these is the security deposit, which is posted by the tenant in the form of cash or letter of credit and held by the landlord for all or part of the duration of the lease. The deposit may be applied by the landlord towards unpaid amounts payable under the lease like rent, proportionate common area expenses or taxes, or reimbursement of amounts expended to repair damage to the premises. A stronger credit tenant may receive the benefit of a return of all or part of the deposit held by landlord over time, provided the tenant has not defaulted.</p>
<h2 class="wp-block-heading">Security Deposits</h2>
<p>While cash security deposits have historically been the industry standard in commercial leasing, landlords are increasingly requiring letter of credit security deposits instead. For many landlords, the benefits of cash on hand are overshadowed by the security of an obligation issued by a third-party bank, particularly when the landlord is able to draw on the letter of credit following a default without notice to or consent by the tenant. Letters of credit also may bear advantages to the landlord following a bankruptcy by the tenant, as the obligation of the issuing bank to pay on the letter of credit is independent of the tenant’s obligations under the lease. However, some courts have found that letter of credit security deposits are part of the tenant’s bankruptcy estate and thus subject to the cap on a landlord’s claim for damages under Section 502(b)(6) of the United States Bankruptcy Code.</p>
<h2 class="wp-block-heading">Lease Guaranties</h2>
<p>Guaranties are a common alternative for securing the credit of a commercial tenant. In the context of commercial leasing, a guaranty is a legally enforceable undertaking by a third party to fulfill the payment or performance obligations of the tenant under a lease. A guaranty may be given by an entity, such as a corporate parent or affiliate, or an individual, such as a majority owner or other key principal of the tenant. To most effectively backstop the credit of the tenant, a guaranty should be a guaranty of payment as opposed to a guaranty of performance. This distinction ensures that the landlord will not be forced to exhaust its remedies against the tenant before pursuing enforcement of the guaranty. Rather, the landlord may pursue the tenant and guarantor simultaneously for unpaid amounts under the lease.</p>
<p>Once a landlord has determined that it will require a guaranty to secure the tenant’s obligations under the lease, what should the landlord look for in evaluating potential guarantors? The most straightforward factor, notwithstanding whether the proposed guarantor is an individual or an entity, is cash on hand and other liquid assets. In satisfaction of the landlord’s inquiry, an guarantors may produce income tax returns, bank statements, financial statements, balance sheets or other evidence of personal holdings. The review process for publicly traded companies is simplified in that pertinent financial information is publicly available. Of course, testing for liquidity has its flaws. There exists no iron-clad protection against fraud, and disclosures only present a snapshot of a party’s credit at the time of the test as opposed to a forecast of future liquidity and stability. A review of tenant and guarantor financial information, as well as credit reports for collections, pledging of material assets or opening of new lines of credit, should be performed at regular intervals throughout the term of the lease.</p>
<h2 class="wp-block-heading">Financial Disclosure Challenges</h2>
<p>Financial disclosures may be problematic or some privately-held concerns. Particularly in the modern era of start-up firms financed by venture capital and private equity interests, tenants and proposed guarantors may be limited by investor confidentiality. With this in mind, parties to a lease should clarify in the lease or guaranty the form of any future disclosures to be made. Tenants and guarantors may resist delivering full-fledged audited financial statements in favor of reduced balance sheets or nominal form of profit and loss statement. Depending on the profile of the market and building, landlords may be willing to accept less than full disclosure if the statements deliver a reasonable picture of the financial health of the party delivering them.</p>
<h2 class="wp-block-heading">Tenant Stability and Performance Incentives</h2>
<p>As lease term and the disclosure provisions are negotiated, tenants may push the landlord for a variety of concessions that effectively incentivize and reward tenant stability. Perhaps the most common examples of this request are limitations on the security deposit, pledged assets or the liability under or the term of the guaranty. Limitations like these can take a variety of forms, from a fixed term to a cap on the guarantor’s liability based upon a fixed dollar-figure or factor of rent payable under the lease, to an automatic reduction of either the security deposit or the cap on the guarantor’s liability over time. In each instance, the landlord should be cognizant of the hurdles the tenant party must overcome to receive the benefit of these limitations, none more important than the uninterrupted timely payment of rent without default.</p>
<h2 class="wp-block-heading">Tenant Credit is a Key to Successful Lease Performance</h2>
<p>In light of the crises our industry has withstood in recent years, a landlord’s exuberance in welcoming new tenants is understandable. But in the current era of increasing economic growth, landlords should adopt a cautious approach in understanding and monitoring the business of their tenants. No landlord can predict with certainty the success or failure of its tenants; however, perhaps now more than ever, a thorough and complete examination of tenant credit is essential to the financial success of any leased real estate.</p>
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<title>Value Investing vs. Momentum Investing</title>
<link>http://harp-onthis.com/value-investing-vs-momentum-investing/</link>
<comments>http://harp-onthis.com/value-investing-vs-momentum-investing/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 02 Oct 2014 11:10:52 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
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<description><![CDATA[As the commercial real estate market begins to pick up steam, beware the urge to follow a “momentum” investment strategy rather that a “value” investment strategy. Momentum investing relies on market increases to generate a return on investment. It is […]]]></description>
<content:encoded><![CDATA[<p>As the commercial real estate market begins to pick up steam, beware the urge to follow a “momentum” investment strategy rather that a “value” investment strategy.</p>
<p><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="104" data-permalink="http://harp-onthis.com/keys-to-closing-a-commercial-real-estate-transaction/httpwww-dreamstime-comroyalty-free-stock-photography-skeleton-keys-image28661257/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?fit=1500%2C1998" data-orig-size="1500,1998" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"(c) Peanutroaster | Dreamstime.com","focal_length":"0","iso":"0","shutter_speed":"0","title":"http:\/\/www.dreamstime.com\/royalty-free-stock-photography-skeleton-keys-image28661257"}" data-image-title="http://www.dreamstime.com/royalty-free-stock-photography-skeleton-keys-image28661257" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?fit=225%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?fit=768%2C1024" class="alignleft size-medium wp-image-104" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?resize=225%2C300" alt="http://www.dreamstime.com/royalty-free-stock-photography-skeleton-keys-image28661257" width="225" height="300" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?resize=225%2C300 225w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?resize=768%2C1024 768w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?w=1500 1500w" sizes="auto, (max-width: 225px) 100vw, 225px" /></a>Momentum investing relies on market increases to generate a return on investment. It is the “rising tide floats all boats” investment model. It is the investment model of which all “bubbles” are made.</p>
<p>As momentum investing accelerates, investment fundamentals tend to get lost. Instead of evaluating cash on cash returns using discounted cash flows that underlie “value” investing, a casino mentality takes hold – whereby investors can justify acquiring assets generating even a negative cash return, with the notion that rising prices will yield a profit. As the saying goes: “Any fool can make a profit in a rising market – and many fools do”. The challenge, of course, comes when a market hits a plateau or, worse yet, the market declines.</p>
<p>As a general proposition, value investing is significantly more prudent. If a project is cash flowing, and generating a positive return on investment, today and for the foreseeable future – which is a fundamental precept of a value investment strategy – the potential added return of any increase in value in the underlying asset caused by the “rising tide” effect is icing on the cake. Choose your cake with care.</p>
<p>There are, of course, exceptions to every rule. But, employing an “exception” is wisely done only after sober reflection of the particular circumstance to determine that in that particular case the exception is warranted. When an exception is regularly employed, it is no longer an exception – but, rather, becomes the rule itself.</p>
<p>As in all markets, there will be winners and there will be losers. It makes sense in the coming commercial real estate revival to position yourself and your company as a winner. You may not get another chance.</p>
<p>Exercise all appropriate due diligence. Use readily available and appropriate asset protection strategies. Invest with intentional regard to reliably building wealth though a well conceived value investing strategy – not a roulette table strategy that, over time, is virtually certain to fail.</p>
<p>If this recent economic debacle has taught us anything, it has taught that bad things can happen to good people who lose sight of the fundamentals. Good deals – even great deals – can be made if reliable commercial real estate investment fundamentals are employed.</p>
<p>As a wise mentor once told me: “You have a good brain – use it.”</p>
<p>Good luck.</p>
<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.<br />
Chicago, IL<br />
www.rsplaw.com<br />
JOIN MY THOUGHTBOARD: www.Harp-OnThis.com</p>
<p>REPORTING FROM THE FIELD. . .</p>
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<title>Asset Protection – Lessons Learned</title>
<link>http://harp-onthis.com/asset-protection-lessons-learned/</link>
<comments>http://harp-onthis.com/asset-protection-lessons-learned/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 18 Sep 2014 11:10:19 +0000</pubDate>
<category><![CDATA[Asset Protection]]></category>
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<description><![CDATA[“The best time to plant a tree was twenty years ago.         The second best time is today.” Chinese proverb For over 35 years, I have represented commercial real estate investors, developers and business owners. Most of that time has […]]]></description>
<content:encoded><![CDATA[
<h4 class="wp-block-heading"><em>“The best time to plant a tree was twenty years ago.</em></h4>
<h4 class="wp-block-heading"><em> The second best time is today.”</em></h4>
<p><em>Chinese proverb</em></p>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="300" data-attachment-id="59" data-permalink="http://harp-onthis.com/asset-protection-lessons-learned/httpwww-dreamstime-comstock-image-empty-safe-image27096841/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?fit=1732%2C1732" data-orig-size="1732,1732" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"(c) Marvinjk | Dreamstime.com","focal_length":"0","iso":"0","shutter_speed":"0","title":"http:\/\/www.dreamstime.com\/stock-image-empty-safe-image27096841"}" data-image-title="http://www.dreamstime.com/stock-image-empty-safe-image27096841" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?fit=300%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?fit=1024%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?resize=300%2C300" alt="http://www.dreamstime.com/stock-image-empty-safe-image27096841" class="wp-image-59" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?resize=300%2C300 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?resize=150%2C150 150w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?resize=1024%2C1024 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?w=1732 1732w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>For over 35 years, I have represented commercial real estate investors, developers and business owners. Most of that time has been spent helping them acquire, finance, expand, develop, manage and grow their assets and businesses. For the past 5 to 6 years, as we have struggled through the <i>Great Recession</i>, a huge amount of my time has been spent helping clients <i>keep</i> their assets.</p>
<p>Growing up, I was steeped in the practical view that it is not so much what you acquire that counts, but, rather, what you keep. My parents and grandparents were not in the real estate business to make <i>others </i>wealthy. They were playing real life Monopoly<span style="font-size: small;">®</span>. They played to win. It was less about money for money’s sake than it was </p>
<span id="more-58"></span>
<p>a means of keeping score. Invest. Reinvest. Expand the bottom line. Control your losses. And keep what you acquire.</p>
<p>A key concern was always asset protection. Perhaps this was a byproduct of my grandfather’s experiences during the <i>Great Depression</i>. He did well, while others around him lost everything. A theme underpinning virtually all investment strategies was to structure our business affairs into risk remote compartments, so that if bad things happened to one project, or with one business, the damage could be contained. My father would compare it to the structure of his ship in the Navy during World War II. If the hull was damaged, water tight bulkheads could contain the damage to avoid jeopardizing the entire ship.</p>
<p>This brings to light one of the great misconceptions about asset protection. A sizable number of people start with the belief that the objective of asset protection is to prevent all creditors from ever getting any of their assets or income. Realistically, it doesn’t work that way. Not even if you use an offshore asset protection trust or other advanced asset protection devices. To even approach making that happen, you would have to create such a tangled weave of trusts and limited liability entities, and give up so much control, that you would never be able to conduct your business or live your life as a functioning human being. It would be immensely expensive, and it still wouldn’t protect <i>everything</i>.</p>
<div class="wp-block-image">
<figure class="alignright size-large is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1918" data-permalink="http://harp-onthis.com/asset-protection-lessons-learned/assetmanagementwordscloudonscreen-financialandbusinessconcept/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?fit=2560%2C1707" data-orig-size="2560,1707" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2018 Wright Studio\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Asset,Management,Words,Cloud,On,Screen.,Financial,And,Business,Concept.","orientation":"1"}" data-image-title="Asset,Management,Words,Cloud,On,Screen.,Financial,And,Business,Concept." data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?fit=1024%2C683" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection.jpg?resize=401%2C267" alt="asset protection" class="wp-image-1918" width="401" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=1024%2C683 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=768%2C512 768w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=1536%2C1024 1536w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=2048%2C1365 2048w" sizes="auto, (max-width: 401px) 100vw, 401px" /></figure></div>
<p>Asset protection need not be particularly complicated or expensive. Basic asset protection strategies can be implemented that do not get in the way of your business or everyday life. Although advanced asset protection planning can utilize off-shore trusts and off-shore bank accounts, those tools and techniques are the exception rather than the rule. They are available if the situation warrants, but for most people there is seldom a legitimate reason to go to such extremes.</p>
<p>Sadly, a significant number of commercial real estate investors and business owners, and many of their lawyers and accountants, pay almost no attention to even basic asset protection strategies. This was never more obvious, and unfortunate, than during the <i>Great Recession</i> we have been working through over the past five to six years. Otherwise sophisticated and historically successful commercial real estate investors, developers and business owners have lost virtually everything. What makes this even more tragic is that, with even modest asset protection planning, many of these catastrophic financial disasters could have been averted.</p>
<p>Clients of mine who planned ahead by structuring their affairs for asset protection have survived this recession and are generally well positioned to move forward to take advantage of emerging opportunities as the economy improves. Many who did not are faced with starting over.</p>
<p>Why not think ahead to protect your assets? You are under no legal obligation to structure your financial affairs in a way that makes it easier for banks and other creditors to take virtually everything you own. Your obligation is to your family, and to yourself, to make sure your life’s work and life’s savings are not lost in the event of financial calamity.</p>
<p>A key point about asset protection is that, to be effective, it must be done well in advance. Once the proverbial <i>fan</i> has been hit, it is likely too late. There may still be some modestly effective strategies to be employed to minimize damage, but real asset protection with powerfully effective outcomes starts when there are no (or, at least, very few) storm clouds on the horizon.</p>
<p>Once you are in financial trouble, it is often too late. Transfers of assets for less than fair value can be set aside as a preference in bankruptcy, or as a fraudulent transfer. The “fraud” in “fraudulent transfer” is not traditional fraud. It is simply the transfer of an asset for less than fair value for the principal purpose of avoiding creditors.</p>
<p>In Illinois, the statute of limitations for fraudulent transfers is four years. This means attempts to transfer assets for less than fair value can be attacked and set aside for four years after the transfer is made. For Medicaid, the look-back period is five years. Early adoption and implementation of even a simple asset protection plan can avoid these attacks.</p>
<p>One of the simplest examples of asset protection: If you are married and own a home with your spouse in Illinois or Indiana, and in most other states, there is virtually no excuse for not owning the home as <i>tenants by the entireties</i> to protect your home from claims of creditors of only one spouse. This is particularly true if one spouse is engaged in business or professional activities with a high risk of liability (business owner, investor, developer, doctor, entrepreneur, etc.), while the other is not. Remarkably, I discovered while defending real estate developers and investors in loan workout and loan settlement efforts over the past few years that not even this modest asset protection tool is always in place. It would have cost nothing. Instead, its absence cost some families their homes.</p>
<p>Beyond these fundamental considerations, there are many others. A common mistake made by business owners is that they will sometimes form a corporation or limited liability company with the intent to protect themselves from personal liability, but then place virtually all of their business assets in a single company, or in a subsidiary of a high risk operating company. If a judgment is entered against the company, all of the business assets may be lost.</p>
<p>Whenever practical, business operations posing a risk of liability should be separated from asset ownership. Assets can and should typically be owned by a low-risk (preferably tax-advantaged) entity and leased or licensed to the higher risk operating company. The best, and least expensive, time to implement this structure is when you acquire the asset or business. Ownership of the low-risk company should likewise be held by a low-risk owner – perhaps a spouse, adult child, trust or holding company. The asset protection plan can, and often should, be part of a more comprehensive estate plan.</p>
<p>Similarly, real estate investments and business ownership structures are often not adequately designed to militate against the risk of liability arising from loan and lease guaranties or other sources of liability to individual sponsors or principals.</p>
<p>There is much that can be done to protect your assets. Many techniques present tax advantages as well. Exactly what can be done depends upon your particular circumstances and when you begin. The best time to begin would have been several years ago. The second best time to begin is now. It is foolish to leave your hard earned assets needlessly exposed to creditor claims when even basic asset protection planning can protect them.</p>
<p>War stories abound of commercial real estate investors and business owners who have lost fortunes, large and small, because they did not plan ahead. Perhaps they thought they were smart enough to be able to avoid financial catastrophes like we have experienced over the past several years. Or they thought they had large enough incomes or net worth to withstand economic adversity or unexpected liability. Or they believed they had such great relationships with their banks or other lenders that obtaining loan extensions or new working capital lines of credit would never be a problem. I’ve head most of the “reasons” – but none of them matter when your assets are being attached by hungry creditors. When you go from being worth millions, to having huge unsatisfied deficiency judgments entered against you, the <i>reasons</i> for not protecting your assets, and your family’s future, ring hollow.</p>
<p>The past five to six years, in particular, have been an asset protection laboratory. Theory has been tested. We have seen many examples of even basic asset protection techniques that work, and have seen, unfortunately, what happens when little or no asset protection planning took place.</p>
<p>If your real estate investments and commercial activities are worth your time and energy – particularly if you dedicate most of your adult life away from your family working to make them succeed – then they are worth protecting. It is much more cost effective to develop and implement an asset protection plan “<i>as you go</i>“, rather than waiting until you decide your estate is “<i>big enough to protect</i>“. At that point, it may be too late, it will certainly be more expensive, and will very likely be less effective. Often, asset protection <i>as you go</i> will cost no more to do right than you spend doing it wrong.</p>
<p>Over the next several years a lot of rebuilding will take place. Literally, in the form of new and redeveloped commercial real estate projects and business enterprises, and figuratively, as previously successful real estate professionals and business owners rebuild their financial lives. Do not make the same mistakes this time around as were made by many in the past. Plan ahead. Build-in basic asset protection strategies in every business structure you devise. Don’t wait another twenty years. Depending upon your age, you may not get a <i>third</i> chance.</p>
<p>Thanks for listening . . .</p>
<p>Kymn</p>
]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">58</post-id> </item>
<item>
<title>Information Providers – Can We Sue Them If They’re Wrong?</title>
<link>http://harp-onthis.com/information-providers-can-we-sue-them-if-theyre-wrong/</link>
<comments>http://harp-onthis.com/information-providers-can-we-sue-them-if-theyre-wrong/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Sat, 23 Aug 2014 14:05:49 +0000</pubDate>
<category><![CDATA[Business]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[Private Sector Business]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[bank]]></category>
<category><![CDATA[bankers]]></category>
<category><![CDATA[broker]]></category>
<category><![CDATA[business]]></category>
<category><![CDATA[caloric content]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[food health]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[information providers]]></category>
<category><![CDATA[lab mistake]]></category>
<category><![CDATA[liability]]></category>
<category><![CDATA[loan documentation]]></category>
<category><![CDATA[nutrition content]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[suit]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=325</guid>
<description><![CDATA[Of Course We Can Sue Them . . . But Can We Hold Them Liable? No one knows everything. It’s a simple fact of life. Often, businesses turn to other businesses and professionals to obtain needed information. The range of commercial information […]]]></description>
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<h2 class="wp-block-heading">Of Course We Can Sue Them . . . But Can We Hold Them Liable?</h2>
<p>No one knows everything. It’s a simple fact of life. Often, businesses turn to other businesses and professionals to obtain needed information. The range of commercial <em>information providers</em> assisting business owners and real estate investors, developers and lenders gather and analyse information is vast.</p>
<div class="wp-block-image">
<figure class="alignleft"><a href="http://www.rsplaw.com/diana-psarras/" rel="noopener"><img data-recalc-dims="1" loading="lazy" decoding="async" width="229" height="300" data-attachment-id="326" data-permalink="http://harp-onthis.com/information-providers-can-we-sue-them-if-theyre-wrong/diana-psarras/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/Diana-Psarras.jpg?fit=1569%2C2047" data-orig-size="1569,2047" data-comments-opened="1" data-image-meta="{"aperture":"2.8","credit":"","camera":"iPhone 4","caption":"","created_timestamp":"1342714276","copyright":"","focal_length":"3.85","iso":"125","shutter_speed":"0.0666666666667","title":""}" data-image-title="Diana H. Psarras" data-image-description="" data-image-caption="<p>Diana H. Psarras<br />
Business & Trust Litigation, Shareholder -Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/Diana-Psarras.jpg?fit=229%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/Diana-Psarras.jpg?fit=784%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/Diana-Psarras.jpg?resize=229%2C300" alt="Diana H. Psarras Business & Trust Litigation, Shareholder -Robbins, Salomon & Patt, Ltd." class="wp-image-326" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/Diana-Psarras.jpg?resize=229%2C300 229w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/Diana-Psarras.jpg?resize=784%2C1024 784w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/Diana-Psarras.jpg?w=1569 1569w" sizes="auto, (max-width: 229px) 100vw, 229px" /></a><figcaption class="wp-element-caption">Diana H. Psarras<br />Business & Trust Litigation, Shareholder, Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p><em>The question is:</em> Do we have a legal right to rely on the information they provide? What if the information is wrong? What if we rely on that incorrect information and suffer a loss? Is the information provider liable?</p>
<p>It could be anything from hiring an appraiser to appraise a property to support a commercial loan; hiring a lab to analyze nutrition and caloric content of food products; or engaging a financial consultant to evaluate a company’s assets and liabilities as part of a business acquisition or merger; or seeking out a lending institution to provide information regarding the creditworthiness of a potential borrower. We might hire a structural engineer to evaluate the structural integrity of a building or bridge or other structure; or engage a surveyor to determine the scope and size of a parcel of land, or the location of easements and improvements located on the property, or the existence of rights of way to access the property; or we might retain a person or business holding itself out as a “due diligence” expert to investigate the essential facts necessary to enable us to determine whether to proceed with a particular transaction or project. The list of commercial information providers we rely upon to conduct our affairs is nearly endless.</p>
<p>Another simple fact of life is that people can and do make mistakes. They misinterpret information. Misstate the facts. Fail to discover and disclose all material information necessary to make information they have provided sufficient to enable informed action and decision-making.</p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1866" data-permalink="http://harp-onthis.com/information-providers-can-we-sue-them-if-theyre-wrong/banker-telling-to-client-regarding-bank-services-make-recommendations-and-consulting/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/banker-telling-to-client-regarding-bank-services-make-recommendations-and-consulting.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="banker-telling-to-client-regarding-bank-services-make-recommendations-and-consulting" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/banker-telling-to-client-regarding-bank-services-make-recommendations-and-consulting.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/banker-telling-to-client-regarding-bank-services-make-recommendations-and-consulting.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/banker-telling-to-client-regarding-bank-services-make-recommendations-and-consulting.jpg?resize=400%2C267" alt="banker telling to client regarding bank services make recommendations and consulting" class="wp-image-1866" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/banker-telling-to-client-regarding-bank-services-make-recommendations-and-consulting.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/banker-telling-to-client-regarding-bank-services-make-recommendations-and-consulting.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/banker-telling-to-client-regarding-bank-services-make-recommendations-and-consulting.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>What happens when your information provider gives you bad information and you suffer a loss as a result? Do you have any recourse? What if </p>
<span id="more-325"></span>
<p>the bad information was simply a mistake? The information provider unintentionally got it wrong, rather than intentionally mislead you? The information provider may not have intended to cause you harm – but you have suffered a loss nonetheless. Is the information provider liable?</p>
<p>If the information provider supplies that information in the course of its business, knowing that you may rely upon it, the answer may very likely be “<em>YES</em>”.</p>
<p>A person who engages in the business of supplying information for the guidance of others is liable for economic damages if the information is incorrect or so incomplete as to be misleading. This is true whether the information provider knew it was wrong or not. Illinois law recognizes that, in general, information providers have a duty to provide complete and accurate information to the intended recipients of the information. If that duty is breached, and you sustain a loss because the information received was inaccurate or misleading, you may be able to recover damages from the party that provided the inaccurate information. The legal theory that gives you the right to sue and recover your damages is “negligent misrepresentation”.</p>
<h2 class="wp-block-heading">What is negligent misrepresentation?</h2>
<p>To prevail on a claim for negligent misrepresentation, you must plead and then prove that the information provider:</p>
<ol class="wp-block-list">
<li>made a false statement of material fact;</li>
<li>was careless in ascertaining the truth of the statement;</li>
<li>made the statement with the intention that you would act in reliance on it;</li>
<li>you must have acted in reliance on the truthfulness of the statement;</li>
<li>you must have incurred damage or loss as a result of such reliance; and</li>
<li>the information provider must have been under a duty to communicate accurate information.</li>
</ol>
<h2 class="wp-block-heading">What is Fraudulent Misrepresentation?</h2>
<p>Negligent misrepresentation is a stone’s throw away from fraudulent misrepresentation, differing in the important element of the intent of the information provider. To make a valid claim for “fraudulent misrepresentation”, the information provider must have known that the false statement was untrue, or must have acted in reckless disregard of its duty to ascertain and report the truth. To be liable, however, it is not necessary for the information provider to commit fraudulent misrepresentation. An information provider may be liable even if it was merely negligent in providing incorrect information.</p>
<h2 class="wp-block-heading">An Information Provider Can Be Liable For Even Negligent Misrepresentation</h2>
<p>Carelessness or negligence in ascertaining the truth of the erroneous statement is sufficient to render the information provider liable. The information provider doesn’t have to intend to offer bad information; just being careless in doing so is a sufficient basis to become liable. The information provider may have genuinely believed it to be true, but if it is untrue and the information provider was careless or negligent in determining the accuracy of the statement, the information provider may be liable to you for damages you sustain in reliance upon the faulty statement.</p>
<h3 class="wp-block-heading">Liability for Failure to Provide Full Information</h3>
<p>Liability of the information provider may even result from failure to provide full information. If a statement of “fact” fails to include other information that is reasonably necessary to prevent that statement from being misleading, this failure to provide adequate information may also result in liability to the information provider.</p>
<h2 class="wp-block-heading">Information Providers Have A Duty To Provide Full and Accurate Information</h2>
<p>Where does the duty arise from?</p>
<p>The duty owed by information providers may arise in different ways. It could be a “<em>fiduciary duty</em>” or a “<em>contractual duty</em>”, or a duty imposed by law.</p>
<ul class="wp-block-list">
<li>A fiduciary duty can arise as a matter of law – attorney/client, trustee/beneficiary, corporate officer/corporation, etc., or can arise based on special circumstances of a parties’ relationship with another, wherein one party places trust and confidence in another so that the latter, after accepting the trust and confidence, gains superiority and influence over the former.</li>
<li>A contractual duty may arise by the terms of a written or oral contract, or may arise as a consequence of custom and practice.</li>
<li>Duties imposed by law may arise by statute, regulation, custom and practice, or at common law.</li>
</ul>
<p>The duty of information providers to provide complete and accurate information can stem from one or more of the above.</p>
<h2 class="wp-block-heading">What does this mean in the real world and to whom who does this apply?</h2>
<p>The type or scope of information to be provided may arise via contract, but the duty of an information provider to make sure the information provided is accurate is a duty implied in law and arises separate and apart from the contract. For example, if you contract with an information provider to provide information that will be used by you in your trade or business, that information provider owes you a duty to provide information that is accurate, and not misleading, even if there is no provision in your contract expressly requiring it to do so.</p>
<h3 class="wp-block-heading">Real world examples:</h3>
<p><em>Example A:</em> Illinois courts have held that a bank providing credit information about a borrower to a potential lender was an information provider who had a duty to provide accurate information. The bank, in its ordinary course of business, was supplying information for the guidance of another which it knew would be relying on the information in making its lending decision. In the case before the Court, the bank gave inaccurate credit information about the prospective borrower, which was relied upon by the lender. The information providing bank was held liable for damages.</p>
<p><em>Example B:</em> Illinois courts have held that a seller’s real estate broker ordinarily has no duty to a prospective buyer to independently substantiate the seller’s representations of fact concerning a property. The seller’s broker is not hired by the buyer to provide information upon which the buyer will be making a home-purchase decision, so the broker has no duty to the buyer. Consequently, it has been held that the buyer has no valid claim against the broker for carelessly providing inaccurate information. However, the broker is not permitted to knowingly provide erroneous information. If the broker knows the information provided is not accurate, but supplies it anyway, the broker may be liable to the buyer for fraudulent misrepresentation.</p>
<p><em>Example C:</em> Illinois courts have held that a title company hired to perform a judgment and lien search had a duty to provide accurate information to the customer in its judgment and lien search report. This duty existed even though (or, perhaps, because) the title company was not asked to insure its search results or provide the customer with a full abstract of title. In the case under consideration, the report failed to disclose a mortgage recorded against the property. Had the customer (a lender) been able to prove it relied on the judgment and lien search to its detriment, the title company may likely have been held liable for negligent representation in providing inaccurate information. The customer was not able to prove reliance, however, and the case was dismissed.</p>
<p>Note that in Example C, above, the title company was asked merely to search the public records and provide information as to the existence or non-existence of judgments or liens. The title company was not asked to provide title insurance.</p>
<p>Title companies are tricky because, at first glance, it would seem that one of the main aspects of a title company’s business is to provide information about real property titles that customers use to make buying or lending decisions. However, the type of service being performed by the title company is an important factor. Illinois courts have held that when issuing a commitment for title insurance (a “title commitment”), the title company is not an information provider, but rather a provider of title insurance products. Because the essential characteristic of a title commitment is an agreement to provide insurance against the risk that a claim will be made against title which is inconsistent with the status of title as insured by the title commitment (and subsequently issued title policy), the title company issuing the title commitment is in the business of selling an insurance product, rather than being an information provider. It is therefore not bound by the information provider duty to provide accurate information. The undertaking of the title insurance company is to pay a claim under the terms of its title insurance policy for any loss incurred by reason of the status of title not being as insured. Information provided in conjunction with an independently useful product, rather than being provided for the sole purpose of informing, is not within the scope of the duty of information providers to provide accurate information.</p>
<p><em>Example D:</em> A recent trend in litigation has mortgagors suing lenders and the lender’s designated appraisers for negligent misrepresentation in providing inflated appraisals. At least one recent Illinois case has held that the mortgagor sufficiently plead that the appraiser and the lender were information providers who had a duty to convey accurate information concerning the value of the property because they knew the mortgagor would reasonably rely upon the appraisal report in making her decision to accept the mortgage. The sole purpose of the appraisal is to provide information as to the value of the property.</p>
<p>To some, this may seem like a stretch, but it points out that claims of liability based upon negligent misrepresentation can be a powerful tool in the hands of creative and knowledgeable lawyers.</p>
<h2 class="wp-block-heading">What does this all mean?</h2>
<p>It means that if you rely upon information provided by others as part of their trade or business, you may be able to hold them liable if the information they provide is inaccurate or incomplete and, as a consequence, you suffer a loss.</p>
<p>Conversely, if you are an information provider, it means you had better act diligently in assuring the accuracy and completeness of information you provide to others.</p>
<p>In either case – damages may be recoverable. Liability is recognized by Illinois courts. Inaccurate information, whether given or withheld, intentionally or through negligence, may enable the person or business that justifiably relies upon that information to recover damages.</p>
<p><em>The claim is real.</em></p>
<p>Thank you for reading my post.</p>
<p><em>Diana H. Psarras</em></p>
<p> </p>
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<title>ICSC RECon 2014 – SPOTLIGHT: MONEE, ILLINOIS</title>
<link>http://harp-onthis.com/icsc-recon-2014-spotlight-monee-illinois/</link>
<comments>http://harp-onthis.com/icsc-recon-2014-spotlight-monee-illinois/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Tue, 20 May 2014 03:01:07 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[business]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[Grocery]]></category>
<category><![CDATA[Illinois]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[Monee]]></category>
<category><![CDATA[public-private partnership]]></category>
<category><![CDATA[Sales tax revenue sharing]]></category>
<category><![CDATA[site entitlement]]></category>
<category><![CDATA[site selection]]></category>
<category><![CDATA[tax abatement]]></category>
<category><![CDATA[TIF]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[urban infill]]></category>
<category><![CDATA[what to look for]]></category>
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<description><![CDATA[ICSC RECon 2014 is in full swing as the largest retail real estate convention in the world. Every year, retail owners, investors, developers, lenders and other commercial real estate professionals converge on Las Vegas, NV to network, discover, promote their […]]]></description>
<content:encoded><![CDATA[
<p>ICSC RECon 2014 is in full swing as the largest retail real estate convention in the world. Every year, retail owners, investors, developers, lenders and other commercial real estate professionals converge on Las Vegas, NV to network, discover, promote their projects, look for development opportunities and make new deals. This year is no exception. There are an estimated 33,000 real estate professionals in attendance for this action-packed three day convention at the Las Vegas Convention Center.</p>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_20348789.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="300" data-attachment-id="522" data-permalink="http://harp-onthis.com/commercial-real-estate-development-life-lessons-and-residential-neighbors/httpwww-dreamstime-comroyalty-free-stock-images-building-future-city-image20348789/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_20348789.jpg?fit=1732%2C1732" data-orig-size="1732,1732" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"(c) Kakigori | Dreamstime.com","focal_length":"0","iso":"0","shutter_speed":"0","title":"http:\/\/www.dreamstime.com\/royalty-free-stock-images-building-future-city-image20348789"}" data-image-title="http://www.dreamstime.com/royalty-free-stock-images-building-future-city-image20348789" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_20348789.jpg?fit=300%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_20348789.jpg?fit=1024%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_20348789.jpg?resize=300%2C300" alt="http://www.dreamstime.com/royalty-free-stock-images-building-future-city-image20348789" class="wp-image-522" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_20348789.jpg?resize=300%2C300 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_20348789.jpg?resize=150%2C150 150w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_20348789.jpg?resize=1024%2C1024 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_20348789.jpg?w=1732 1732w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>Once again this year, members of the International Council of Shopping Centers are recognizing and acknowledging the need for public-private partnerships with local communities to promote economic development. The extremely difficult economic conditions over the past several years have taken a toll on communities and developers alike. Now, more than ever, they need each other to facilitate mutually beneficial development.</p>
<p>To help local governments establish and promote much needed permanent, beneficial economic changes for their communities, ICSC in cooperation with other development groups and agencies continues to </p>
<span id="more-790"></span>
<p>work cooperatively with local communities. To this end, in 2011, ICSC published a handbook entitled <em>Retail 1-2-3</em> to introduce the basic questions a community must ask itself prior to establishing a plan to attract new commercial businesses. While there is much to consider, key factors include communities knowing what they need, setting priorities, and taking realistic and intentional efforts to accomplish their development objectives.</p>
<h1 class="wp-block-heading">SPOTLIGHT: <em>MONEE, ILLINOIS – “WE NEED A GROCERY STORE”</em></h1>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1950" data-permalink="http://harp-onthis.com/icsc-recon-2014-spotlight-monee-illinois/supermarketaislewithemptyredshoppingcart/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/supermarket-aisle-with-empty-red-shopping-cart.jpg?fit=1000%2C563" data-orig-size="1000,563" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2020 non c\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Supermarket,Aisle,With,Empty,Red,Shopping,Cart.","orientation":"1"}" data-image-title="Supermarket,Aisle,With,Empty,Red,Shopping,Cart." data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/supermarket-aisle-with-empty-red-shopping-cart.jpg?fit=300%2C169" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/supermarket-aisle-with-empty-red-shopping-cart.jpg?fit=1000%2C563" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/supermarket-aisle-with-empty-red-shopping-cart.jpg?resize=400%2C225" alt="supermarket aisle with empty red shopping cart" class="wp-image-1950" width="400" height="225" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/supermarket-aisle-with-empty-red-shopping-cart.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/supermarket-aisle-with-empty-red-shopping-cart.jpg?resize=300%2C169 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/supermarket-aisle-with-empty-red-shopping-cart.jpg?resize=768%2C432 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>I had the pleasure this year of meeting with Mayor Jay Farquhar, of Monee, Illinois, on the ICSC Leasing Floor, in the Cities of the World exhibition area. Mayor Farquhar and Monee Village Clerk, Wayne Haser, are aggressively promoting the Village of Monee and its economic development needs.</p>
<p>Monee, Illinois, a southern suburb of Chicago, is in Will County, Illinois, the fastest growing county in Illinois and one of the fastest growing counties in the United States. There are currently 670,000 consumers, and 240,000 homes within a 15 mile radius. Median household income exceeds $67,000. Median age is 37.5 years. The Village is near the planned South Suburban Airport and is served by Interstate 57 and U.S. Highway 50 as major thoroughfares. Over 48,000 vehicles pass through Monee every day.</p>
<p>Yet . . . , Monee has no grocery store within its municipal boundaries. The nearest major grocer is approximately 18 miles away. This is an inconvenience for community residents, and is a major opportunity for a grocery store developer/operator.</p>
<p>Attracting a grocery store to Monee, Illinois is a primary economic development objective of the Village. So much so that the Village of Monee has acquired and set aside a five (5) acre corner lot, specifically reserved for grocery store development. Economic development incentives are available to make this an ideal location for a win-win public private partnership for the community and a willing grocery store developer.</p>
<p>Grocery store development is not the only economic development Monee is seeking to attract. Monee has identified a large tract of land available for new retail development, and has compiled information on existing inventories of retail space available for retail users seeking to locate or expand in Monee. For the right kinds of development, Monee has expressed a willingness to come to the bargaining table to facilitate mutually beneficial development opportunities.</p>
<p>It was a pleasure speaking with Mayor Farquhar because of his genuine interest in attracting new development to Monee. He seemed sensitive to the economic realities faced by developers and expressed a willingness for the Village of Monee to join as an economic development facilitator in a well-structured public-private partnership to get it done.</p>
<p>As readers of this blog are aware, I have occasionally been critical of municipalities for the Jekyll and Hyde approach sometimes taken with respect to economic development. You may recall my post <a title="Cities Shooting Economic Development in the Foot" href="http://harp-onthis.com/commercial-real-estate/cities-shooting-economic-development-in-the-foot/" target="_blank" rel="noopener"><em>Cities Shooting Economic Development in the Foot</em></a>. I cannot guaranty that this won’t be the case in Monee, Illinois, but all indications are that Monee is a development friendly environment with a Mayor that “gets it”. After all, Monee, Illinois did send its Mayor and Village Clerk on a mission to ICSC RECon 2014 to snare a grocery store and promote community economic development. Check out <a title="Village of Monee, IL Retail" href="http://www.villageofmonee.org/retail" target="_blank" rel="noopener">www.VillageofMonee.org/RETAIL</a>.</p>
<p>If you are a grocery store developer, it may make sense to consider this opportunity in Monee, Illinois.</p>
<p>Thanks for listening. If I can help, let me know.</p>
<p><em>Kymn</em></p>
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<title>Commercial Real Estate Due Diligence – Do You Know the Four Areas of Inquiry?</title>
<link>http://harp-onthis.com/commercial-real-estate-due-diligence-do-you-know-the-four-areas-of-inquiry/</link>
<comments>http://harp-onthis.com/commercial-real-estate-due-diligence-do-you-know-the-four-areas-of-inquiry/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 12 May 2014 23:00:34 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence binder]]></category>
<category><![CDATA[due diligence checklist]]></category>
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<guid isPermaLink="false">http://harp-onthis.com/?p=288</guid>
<description><![CDATA[  Albert Einstein:           “Everything should be made as simple as possible, but not simpler.”   Commercial Real Estate Due Diligence – the Four Areas of Inquiry I’m a big fan of Albert Einstein. He’s one of my intellectual heroes.  He […]]]></description>
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<h4 class="wp-block-heading"> </h4>
<h4 class="wp-block-heading">Albert Einstein: <i>“Everything should be made as simple as possible, but not simpler.”</i></h4>
<h2 class="wp-block-heading"> </h2>
<h2 class="wp-block-heading">Commercial Real Estate Due Diligence – the Four Areas of Inquiry</h2>
<div class="wp-block-image">
<figure class="alignleft"><a href="http://harp-onthis.com/business/due-diligence-checklists-for-commercial-real-estate-transactions/"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="124" data-attachment-id="120" data-permalink="http://harp-onthis.com/commercial-real-estate-due-diligence-do-you-know-the-four-areas-of-inquiry/cropped-dreamstime_m_4416964-jpg/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?fit=999%2C413" data-orig-size="999,413" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"(c) Svanhorn4245 | Dreamstime.com","focal_length":"0","iso":"0","shutter_speed":"0","title":"http:\/\/www.dreamstime.com\/stock-images-due-diligence-image4416964"}" data-image-title="cropped-dreamstime_m_4416964.jpg" data-image-description="<p>http://harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg</p>
" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?fit=300%2C124" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?fit=999%2C413" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?resize=300%2C124" alt="cropped-dreamstime_m_4416964.jpg" class="wp-image-120" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?resize=300%2C124 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?resize=500%2C206 500w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/cropped-dreamstime_m_4416964.jpg?w=999 999w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>I’m a big fan of Albert Einstein. He’s one of my intellectual heroes. He could see and understand what others could barely imagine. His greatest gift, I believe, was his ability to find answers to questions others didn’t even know existed.</p>
<p>Real estate due diligence requires insight as well. To find the answers, you must </p>
<span id="more-288"></span>
<p>know the questions.</p>
<p>Of course, I’m no Albert Einstein but, then, real estate due diligence is not inter-galactic science.</p>
<p>The term itself is confusing. “<em>Due diligence</em>” is used grammatically like it’s a thing or a process. “<i>We need to complete our due diligence</i>”; or “<i>Let me review your due diligence”</i>; or “<i>due diligence is expensive</i>”. I admit, I use it the same way.</p>
<p>In fact, however, “due diligence” is a standard of conduct. Due diligence refers to the degree of diligence we should exercise to investigate and analyze all important issues facing a particular transaction. That is to say, the degree of diligence that is <em>“due”</em> under the circumstances.</p>
<p> This definition has two important components:</p>
<!--more-->
<ol class="wp-block-list">
<li>a focus on “<em>important issues</em>”; and</li>
<li>the degree of diligence appropriate under the circumstances of the particular transaction.</li>
</ol>
<p>The art of the deal, so to speak, is in understanding what is “<em>important</em>” and what degree of investigation is due.</p>
<p>Failure to accurately identify these two threshold considerations will lead to one of two outcomes. The due diligence investigation will be either: (1) incomplete – and therefore ineffective to discover and resolve the important transaction risks it is intended to protect against; or (2) overly broad – in which case it will be more time-consuming and expensive than it needs to be. Either way, its value is diminished.</p>
<p>Due diligence can be expensive. We need to avoid making it more expensive than necessary.</p>
<p>So, how do we make sure we get full value for our due diligence dollars? By making sure we know the right questions to ask, and then answering them.</p>
<p>This requires two preliminary sets of questions:</p>
<p> <i>First</i>: What is the vision for this property? Why is it being acquired, and how will it be used?</p>
<p> <i>Second</i>: What is necessary to be known in order to confirm the vision can be fulfilled?</p>
<p>To be sure, we must know the <i>first</i> to answer the <i>second</i>. It is in answering the second that due diligence must be exercised.</p>
<p>For guidance, please review: “<a title="DUE DILIGENCE CHECKLISTS for Commercial Real Estate Transactions" href="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/" target="_blank" rel="noopener"><i>Due Diligence Checklists for Commercial Real Estate Transactions</i></a>”.</p>
<h2 class="wp-block-heading">For commercial real estate, there are four principal areas of concern:</h2>
<ol class="wp-block-list">
<li> Market Demand</li>
<li> Access</li>
<li> Use</li>
<li> Finances</li>
</ol>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1878" data-permalink="http://harp-onthis.com/commercial-real-estate-due-diligence-do-you-know-the-four-areas-of-inquiry/youngprofessionaldrawingagrowingrealestatechart-concretebackground/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?fit=1000%2C795" data-orig-size="1000,795" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2014 ImageFlow\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Young,Professional,Drawing,A,Growing,Real,Estate,Chart.,Concrete,Background.","orientation":"0"}" data-image-title="Young,Professional,Drawing,A,Growing,Real,Estate,Chart.,Concrete,Background." data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?fit=300%2C239" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?fit=1000%2C795" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?resize=400%2C317" alt="young professional drawing a growing real estate chart" class="wp-image-1878" width="400" height="317" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?resize=300%2C239 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/young-professional-drawing-a-growing-real-estate-chart.jpg?resize=768%2C611 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>Once the vision is clear, addressing these four areas of concern will determine whether that vision can be fulfilled. Within these four areas of concern we will find all the questions that need to be asked and answered to determine the feasibility of any commercial real estate transaction or project. How straightforward is that?</p>
<p>So what do these areas of concern entail? In simple terms, they can be summarized by a description of the inquiry they present.</p>
<h2 class="wp-block-heading">1. Market Demand</h2>
<p><em>Market demand</em> asks this question: Is the proposed project needed or wanted by target consumers in the geographic area within which the property is located?</p>
<p>Market demand is the most fundamental of the four aspects of commercial real estate. If there is no market demand, the transaction or project should not go forward. If you are developing, financing or investing in a real estate project, make sure there is market demand for what is being offered. If you are a strategic user intending to occupy and use the property yourself, market demand may be satisfied by your own business needs. If you are investing on speculation, be sure you know the demand of your intended market.</p>
<p>Determining market demand seldom involves a legal question. No attorney time is necessary. [<em>See? I’m saving you money already</em>.]
<h2 class="wp-block-heading"><b>2. Access</b></h2>
<p><em>Access</em> asks this question: Assuming adequate market demand to justify the proposed transaction or project, can target consumers seeking the goods or services to be offered at or from the property get to it with ease? This aspect includes evaluation of:</p>
<ul class="wp-block-list">
<li>existing or proposed highways, streets, and drives that will serve the site;</li>
<li>availability of in-and-out curb cuts for consumers and for delivery trucks and vans;</li>
<li>vehicular traffic flow to, from, and within the project site;</li>
<li>volume and convenience of pedestrian traffic;</li>
<li>ability of the project to accommodate the needs of the disabled in a manner compliant with Title III of the Americans with Disabilities Act (ADA), 42 U.S.C. §12181, et seq.;</li>
<li>adequacy of available parking (which, for business reasons, may need to be greater than the minimum required for zoning);</li>
<li>availability of public transportation; <em>and</em></li>
<li>all other factors that may affect the flow of consumers and users to and from the site.</li>
</ul>
<h2 class="wp-block-heading"><b> 3. Use </b></h2>
<p><em>Use</em> asks this question: Can the property be used as intended? This aspect includes an inquiry into:</p>
<ul class="wp-block-list">
<li>applicable zoning and private land use controls;</li>
<li>availability of utilities;</li>
<li>internet/social-network connectivity and availability of telecommunications;</li>
<li>site topography;</li>
<li>quality of soil compaction to enable improvement using cost-effective methods of construction;</li>
<li>evaluation of the environmental condition of the property to determine whether environmental impediments exist that would prevent use of the property as intended absent remediation, institutional controls or environmental impact mitigation; <em>and</em></li>
<li>all other factors that may prevent the site from being used as inte<b>nded. </b></li>
</ul>
<h2 class="wp-block-heading"> 4. Finances</h2>
<p><em>Finances</em> asks these questions: (a) Can funds be obtained to acquire, construct, and operate the project? <i>and </i>(b) Will the investor receive an adequate return on investment to justify proceeding with the transaction or project?</p>
<p>To answer these questions we must know the cost of acquisition or development and the net operating income and capital recovery expected to be generated by the project.</p>
<p>We must determine whether costly environmental remediation or institutional controls will be required; the amount of applicable user fees; environmental impact mitigation costs, if any; real estate taxes; special assessments; tenant allowance or build-out requirements; and all other factors having an economic impact.</p>
<p>Although finances are primarily a business concern, certain aspects of project finance do fall within the realm of legal due diligence. Thus the reference to one-half of the Finances concern being within the realm of attorney conducted due diligence.</p>
<p>Documentation of equity investments and project loans, as well as hybrids such as mezzanine financing, demand the attention of legal counsel.</p>
<p>If the property is leased, an evaluation of the amount, velocity and durability of the revenue stream and any financial commitments of the owner/landlord are often considered by counsel.</p>
<p>Certainly, if public money is sought to reduce the net cost of development, legal counsel is required.</p>
<h2 class="wp-block-heading"><b>Other Due Diligence Concerns</b></h2>
<p>The four areas of concern described above pertain to the “<em>real estate</em>” aspects of the transaction. If you are dealing with commercial real estate, your due diligence must focus on these issues.</p>
<p>Every capital transaction has other due diligence concerns as well. These other concerns are beyond the scope of this post, but may include issues pertaining to entity structure, authority of the parties, income and capital gains taxation and tax deferments, securities, and the overall structure of the transaction, to name just a few.</p>
<p>Commercial real estate due diligence is not rocket science but . . .</p>
<p> . . . it certainly helps if you know what you’re looking for.</p>
<p class="has-text-align-center"> Thanks for listening! <i> </i></p>
<p><i> Kymn</i></p>
<p> </p>
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<title>IN PRAISE OF REAL ESTATE DEVELOPERS – Let’s Do Lunch!</title>
<link>http://harp-onthis.com/praise-developers-lets-lunch/</link>
<comments>http://harp-onthis.com/praise-developers-lets-lunch/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Fri, 10 Jan 2014 20:28:21 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
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<description><![CDATA[This article is being republished as a welcoming salutation to many of my long-lost Real Estate Developer friends.  You have been missed over the past several years. Call me.  Let’s do lunch! Did I happen to mention I love Real […]]]></description>
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<p class="has-text-align-center"><i>This article is being republished as a welcoming salutation to many of my long-lost Real Estate Developer friends. You have been missed over the past several years. Call me. Let’s do lunch!</i></p>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="109" data-attachment-id="283" data-permalink="http://harp-onthis.com/about/rsp_logofull_2pms/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":""}" data-image-title="RSP_LogoFull_2PMS" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=963%2C350" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=300%2C109" alt="RSP_LogoFull_2PMS" class="wp-image-283" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=500%2C181 500w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>Did I happen to mention I love Real Estate Developers? Not like I love my wife or my kids, or even my dog, but Real Estate Developers are definitely among my favorite people.</p>
<p>Think about it.</p>
<p>Real Estate Developers are like Gods. [Well, miniature gods, at least.] They create much of the physical world we inhabit. The homes and condominiums we live in. The grocery store and pharmacy down the street. The resorts and casinos and golf courses we enjoy for leisure. Restaurants. Shopping centers. Office buildings. Movie theaters. Truck terminals. Medical and surgical centers. Spas. Factories. Warehouses. Auditoriums. Parking garages. Hotels.</p>
<p>You name it; if its <i>man-made</i>, attached to dirt, and we can get inside it, a Real Estate Developer was probably involved.</p>
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<figure class="alignright size-medium is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="200" data-attachment-id="1920" data-permalink="http://harp-onthis.com/praise-developers-lets-lunch/constructionworkerindubaimarinainasummerdayunited/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developers-scaled.jpg?fit=2560%2C1707" data-orig-size="2560,1707" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2016 Sergii Figurnyi\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Construction,Worker,In,Dubai,Marina,In,A,Summer,Day,,United","orientation":"0"}" data-image-title="Construction,Worker,In,Dubai,Marina,In,A,Summer,Day,,United" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developers-scaled.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developers-scaled.jpg?fit=1024%2C683" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developers.jpg?resize=300%2C200" alt="real estate developers" class="wp-image-1920" style="width:400px;height:264px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developers-scaled.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developers-scaled.jpg?resize=1024%2C683 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developers-scaled.jpg?resize=768%2C512 768w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developers-scaled.jpg?resize=1536%2C1024 1536w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-developers-scaled.jpg?resize=2048%2C1365 2048w" sizes="auto, (max-width: 300px) 100vw, 300px" /></figure></div>
<p>Real Estate Developers are visionaries. They have the vision to recognize trends and the need for change. They recognize imbalances between what exists and what is needed. They see neighborhoods and towns and regions in flux as opportunities for renewal and improvement. Not only do Real Estate Developers see opportunity, they seize it. They envision change and commit to it. Then work with it; massage it; shape it; squeeze it; stir it; shake it; blend it; juggle it; and make it happen.</p>
<p>How could anyone not love that?</p>
<p>Real Estate Developers are visionaries with a purpose. Visionaries who know how to transform their vision into reality. They are optimists. They are dreamers and doers wrapped into one. And for me, they are fun. Not funny, necessarily, but fun to be around. Fun to work with. Fun to dream with.</p>
<p>I remember back in 1992 when John L. Marks of Mark IV Realty Group walked into my office and said he wanted to buy and redevelop the Marina City Entertainment Complex in downtown Chicago. At the time, the Marina City Entertainment Complex was a rat hole. Largely vacant. In foreclosure. Languishing in bankruptcy. Burdened with nearly $10,000,000 in unpaid and delinquent real estate taxes. Physically decaying and needing tens of millions of dollars in repairs. The residential condominium owners occupying the top 40 floors of the two landmark corn cob shaped towers were understandably hostile and uncooperative – having been burned in the past by broken promises of prior owners.</p>
<p>Yet, in all of this mess, John saw opportunity. He had a vision that this dilapidated, decaying behemoth of an eyesore could be transformed into an economically viable and thriving jewel.</p>
<p>We spent most of the next four years working on that project. The transformation was remarkable. We had a blast making it happen.</p>
<p>Today, the Marina City Entertainment Complex is home to the House of Blues, Hotel Sax, Smith and Wollensky Steak House, Bin 36 Wine Cafe, Bar Louie, 10 Pin Bowling Lounge, Skipper Bud’s Marina, and numerous other thriving businesses. The pie-shaped condominiums starting above the 20 story parking garage in each of the residential towers have risen substantially in value and offer some of the most dramatic skyline views in Chicago. The entire Marina City complex has been reestablished as a thriving mixed-use and entertainment mecca in the heart of Chicago.</p>
<p>Why? Because Chicago Real Estate Developer John L. Marks had the vision and commitment to make it happen.</p>
<p>Did I mention I love Real Estate Developers?</p>
<p>In the Spring of 2005, I got the call to join the development team of Madkatstep Entertainment LLC.</p>
<p>Madkatstep Entertainment was a combined venture of <a title="Sears Holdings Corporation" href="http://www.searsholdings.com/" target="_blank" rel="noopener">Sears Holdings Corporation</a>, the retailing giant, and <a title="Ryan Companies US, Inc." href="http://www.ryancompanies.com/" target="_blank" rel="noopener">Ryan Companies US, Inc</a>., a remarkably creative and entrepreneurial Real Estate Developer based in Minneapolis, Minnesota. [Yes, I love Ryan Companies too.]
<p>It started with an idea.</p>
<p>Ryan Companies and the V.P. of Real Estate at Sears had a notion to build a sports and entertainment venue in an affluent community in need of convenient and unique entertainment options.</p>
<p>Sears had moved its corporate headquarters to Hoffman Estates, Illinois in the early 1990s. As part of that move, Sears had acquired a large tract of adjacent land that was ready and available for development.</p>
<p>Hoffman Estates is a forward looking community in a growing and affluent region northwest of Chicago in search of quality of life amenities for its residents.</p>
<p>It was a match made in heaven.</p>
<p>By the time I was called in as lead development counsel, Sears and Ryan had already negotiated a Memorandum of Understanding with the Village of Hoffman Estates setting forth a basic framework for the new Sears Centre Arena, including general terms for municipal financing.</p>
<p>A major tenant for the new Sears Centre Arena was to be a professional hockey team. A key development objective was to have the 11,000 capacity, 240,000 square foot arena built and ready for occupancy in time for the Fall 2006 hockey season. It was already April 2005, only 18 months from the target opening date. Even the most accelerated construction schedule required a minimum of 14 months from groundbreaking to opening. Time was running out.</p>
<p>In the 100 day rush that followed, the entire development team entered a zone and worked nearly around the clock with the Village of Hoffman Estates.</p>
<p>The Real Estate Developer, Ryan Companies US, Inc., working closely with SHC Real Estate., negotiated agreements, confronted issues and overcame obstacles to obtain formal development approval, finalized municipal financing, formalized the naming rights agreement and ownership agreements, and accommodated project dissenters who were threatening litigation to delay or stop the arena from being built.</p>
<p>In the end, it was creativity, perseverance and intense focus that led to the official groundbreaking for Sears Centre Arena on July 21, 2005. It is a unique sports and entertainment facility that will serve the Village of Hoffman Estates and neighboring towns for decades to come. It is already serving as an economic engine for complementary development that will provide new jobs, new opportunities and a broadened tax base.</p>
<p>These two examples of creative development by visionary Real Estate Developers are not unique. Between these two notable examples, and beyond, the scenario plays out over and over again in large and small development projects every day.</p>
<p>Renewal of functionally obsolete or declining shopping centers, warehouses and other structures into modern and thriving enterprises.</p>
<p>Resurrection of blighted and decaying areas in cities and towns into homes and condominiums with retail and service businesses to support new neighborhoods.</p>
<p>Recycling of contaminated industrial brownfields into safe and productive environments for consumers and business.</p>
<p>Greenfield developments to provide new opportunities, new jobs and new services for emerging communities and families.</p>
<p>Real Estate Developers are seeing a need, stepping up to the challenge and improving the world in which we live.</p>
<p>I have been blessed to work with some amazingly creative and dedicated Real Estate Developers, both large and small, who are making a difference – and a profit – while having fun in the process.</p>
<p>Did I say fun? Maybe not during every moment while facing every challenge, but by and large</p>
<p>Real Estate Developers are people who genuinely enjoy what they are doing. As a commercial real estate attorney, working with Real Estate Developers has always been, for me, exhilarating.</p>
<p>Why do I love Real Estate Developers? Ask yourself: How many times do you have the opportunity to work with people who make your job “exhilarating”? What’s not to love about that?</p>
<p>So, the next time you meet a Real Estate Developer, please, grab the developer’s hand, look him or her directly in the eye and say with deepest gratitude and sincerity: <i>“Thank you! My friend Kymn Harp thinks you are the most wonderful person in the world. He loves you and thinks you are brilliant.” </i>[Then slip him my business card and ask him to call me.]
<p> Thanks for listening.</p>
<p> <i>R. Kymn Harp </i></p>
<p>P.S. For those of you with “normal” names – or at least conventional name spellings, you may appreciate this assist:</p>
<p>My name “Kymn” is a family name and is pronounced “Kim”. Think of “Kymn” as being like a “church <span style="text-decoration: underline;">hymn</span>”, with a “K” instead of an “H”. To remember this, associate my last name “Harp” with “Angels”. Then, if it helps, think of me as “Kymn Harp, the Real Estate Developer’s dirt-angel” (with a law degree).</p>
<p> Thanks again,</p>
<p><i> Kymn </i></p>
<p> </p>
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<title>DUE DILIGENCE CHECKLISTS – for Commercial Real Estate Transactions</title>
<link>http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions/</link>
<comments>http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Tue, 26 Nov 2013 14:10:51 +0000</pubDate>
<category><![CDATA[Business]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[lending]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[bank]]></category>
<category><![CDATA[business]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[lenders]]></category>
<category><![CDATA[loans]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[site entitlement]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[urban infill]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=35</guid>
<description><![CDATA[Are you planning to purchase, finance or develop any of the following types of Commercial or Industrial Real Estate? A KEY element to successfully investing in commercial or industrial real estate is performing an adequate Due Diligence Investigation prior to […]]]></description>
<content:encoded><![CDATA[
<h2 class="wp-block-heading">Are you planning to purchase, finance or develop any of the following types of Commercial or Industrial Real Estate?</h2>
<ul class="wp-block-list">
<li>• Shopping Center?</li>
<li>• Office Building?</li>
<li>• Large Multifamily residential?</li>
<li>• Parking Lot/Parking garage?</li>
<li>• Retail Store?</li>
<li>• Mixed-Use?</li>
<li>• Restaurant/Banquet property?</li>
<li>• Sports and Entertainment Venue?</li>
<li>• Intermodal Logistics Terminal?</li>
<li>• Medical Building?</li>
<li>• Gas Station?</li>
<li>• Distribution Center?</li>
<li>• Manufacturing facility?</li>
<li>• Pharmacy?</li>
<li>• Special Use facility ?</li>
<li>• Other?</li>
</ul>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="109" data-attachment-id="1041" data-permalink="http://harp-onthis.com/illinois-llcs-the-asset-protection-advantage/rsp_logohd-3/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"}" data-image-title="RSP_LogoHD (3)" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109" alt="RSP_LogoHD (3)" class="wp-image-1041" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>A KEY element to successfully investing in commercial or industrial real estate is performing an adequate Due Diligence Investigation prior to becoming legally bound to acquire the property. An adequate Due Diligence Investigation will assure awareness of all material facts relevant to the intended use or disposition of the property after closing.</p>
<p> The following checklists will help you conduct a focused and meaningful Due Diligence Investigation.</p>
<h2 class="wp-block-heading"> BASIC DUE DILIGENCE CONCEPTS</h2>
<h3 class="wp-block-heading"> Caveat Emptor: Let the Buyer beware.</h3>
<p>Consumer protection laws applicable to home purchases seldom apply to commercial real estate transactions. The rule that a Buyer must examine, judge, and test for himself, applies to the purchase of commercial real estate.</p>
<h3 class="wp-block-heading">Due Diligence:</h3>
<p>“Such a measure of prudence, activity, or assiduity, as is proper to be expected from, and ordinarily exercised by, a reasonable and prudent (person) under the particular circumstances; not measured by any absolute standard, but depending upon the relative facts of the special case.” Black’s Law Dictionary; West Publishing Company.</p>
<p>Contractual representations and warranties are NOT a substitute for Due Diligence. Breach of representations and warranties = Litigation, time and $$$$$.</p>
<p>The point of commercial real estate due diligence is to avoid transaction surprises and confirm the Property can be used as intended.</p>
<h2 class="has-text-align-center wp-block-heading"> WHAT DILIGENCE IS DUE?</h2>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1883" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions/folderwiththelabelduediligence/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?fit=1000%2C662" data-orig-size="1000,662" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2014 Zerbor\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Folder,With,The,Label,Due,Diligence","orientation":"0"}" data-image-title="Folder,With,The,Label,Due,Diligence" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?fit=300%2C199" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?fit=1000%2C662" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?resize=400%2C265" alt="folder with the label due diligence" class="wp-image-1883" width="400" height="265" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?resize=300%2C199 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/folder-with-the-label-due-diligence.jpg?resize=768%2C508 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>The scope, intensity and focus of any Due Diligence Investigation of commercial or industrial real estate depends upon the objectives of the party for whom the investigation is conducted. These objectives may vary depending upon whether the investigation is conducted for the benefit of: (i) a Strategic Buyer (or long-term lessee); (ii) a Financial Buyer; (iii) a Developer; or (iv) a Lender.</p>
<p>If you are a Seller, understand that to close the transaction your Buyer and its Lender must address all issues material to their respective objectives – some of which require information only you, as Owner, can adequately provide.</p>
<h3 class="wp-block-heading">GENERAL OBJECTIVES:</h3>
<p> (i) A “Strategic Buyer” (or long-term lessee) is acquiring the property for its own use and must verify that the property is suitable for that intended use.</p>
<p> (ii) A “Financial Buyer” is acquiring the property for the expected return on investment generated by the property’s anticipated revenue stream, and must determine the amount, velocity and durability of the revenue stream. A sophisticated Financial Buyer will likely calculate its yield based upon discounted cash-flows rather than the much less precise capitalization rate (“Cap. Rate”), and will need adequate financial information to do so.</p>
<p> (iii) A “Developer” is seeking to add value by changing the character or use of the property – usually with a short-term to intermediate-term exit strategy to dispose of the property; although, a Developer might plan to hold the property long term as a Financial Buyer after development or redevelopment. The Developer must focus on whether the planned change in character or use can be accomplished in a cost-effective manner.</p>
<p> (iv) A “Lender” is seeking to establish two basic lending criteria:</p>
<p> (1) “<em>Ability to Repay</em>” – The ability of the property to generate sufficient revenue to repay the loan on a timely basis; <em>and</em></p>
<p> (2) “<em>Sufficiency of Collateral</em>” – The objective disposal value of the collateral in the event of a loan default, to assure adequate funds to repay the loan, carrying costs and costs of collection in the event forced collection becomes necessary.</p>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="199" data-attachment-id="614" data-permalink="http://harp-onthis.com/perfect-seller/questions-and-answers-signpost/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=1699%2C1130" data-orig-size="1699,1130" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"Concept image of the six most common questions and answers on a signpost.","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"Questions and Answers signpost"}" data-image-title="Questions and Answers signpost" data-image-description="<p>Concept image of the six most common questions and answers on a signpost.</p>
" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=300%2C199" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?fit=1024%2C681" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=300%2C199" alt="Questions and Answers signpost" class="wp-image-614" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=300%2C199 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=1024%2C681 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?resize=451%2C300 451w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/Who-What-Where-image-iStock.jpg?w=1699 1699w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>The amount of diligent inquiry due to be expended (i.e. “Due Diligence”) to investigate any particular commercial or industrial real estate project is the amount of inquiry required to answer each of the following questions to the extent relevant to the objectives of the party conducting the investigation:</p>
<h2 class="wp-block-heading">I. THE PROPERTY:</h2>
<p> 1. Exactly what PROPERTY does Purchaser believe it is acquiring?</p>
<p>• Land?</p>
<p>• Building?</p>
<p>• Fixtures?</p>
<p>• Other Improvements?</p>
<p>• Other Rights?</p>
<p>• The entire fee title interest including all air rights and subterranean rights?</p>
<p>• All development rights?</p>
<p> 2. What is Purchaser’s planned use of the Property?</p>
<p> 3. Does the physical condition of the Property permit use as planned?</p>
<p>• Commercially adequate access to public streets and ways?</p>
<p>• Sufficient parking?</p>
<p>• Structural condition of improvements?</p>
<p>• Environmental contamination?</p>
<p>• Innocent Purchaser defense vs. exemption from liability</p>
<p>• All Appropriate Inquiry</p>
<p> 4. Is there any legal restriction to Purchaser’s use of the Property as planned?</p>
<p>• Zoning?</p>
<p>• Private land use controls?</p>
<p>• Americans with Disabilities Act?</p>
<p>• Availability of licenses?</p>
<p>• Liquor license?</p>
<p>• Entertainment license?</p>
<p>• Outdoor dining license?</p>
<p>• Drive through windows permitted?</p>
<p>• Other impediments?</p>
<p> 5. How much does Purchaser expect to pay for the property?</p>
<p> 6. Is there any condition on or within the Property that is likely to increase Purchaser’s effective cost to acquire or use the Property?</p>
<p>• Property owner’s assessments?</p>
<p>• Real estate tax in line with value?</p>
<p>• Special Assessment?</p>
<p>• Required user fees for necessary amenities?</p>
<p>• Drainage?</p>
<p>• Access?</p>
<p>• Parking?</p>
<p>• Other?</p>
<p> 7. Any encroachments onto the Property, or from the Property onto other lands?</p>
<p> 8. Are there any encumbrances on the Property that will not be cleared at Closing?</p>
<p>• Easements?</p>
<p>• Covenants Running with the Land?</p>
<p>• Liens or other financial servitudes?</p>
<p>• Leases?</p>
<p>9. If the Property is subject to any Leases, are there any:</p>
<p>• Security Deposits?</p>
<p>• Options to Extend Term?</p>
<p>• Options to Purchase?</p>
<p>• Rights of First Refusal?</p>
<p>• Rights of First Offer?</p>
<p>• Maintenance Obligations?</p>
<p>• Duty of Landlord to provide utilities?</p>
<p>• Real estate tax or CAM escrows?</p>
<p>• Delinquent rent?</p>
<p>• Pre-Paid rent?</p>
<p>• Tenant mix/use controls?</p>
<p>• Tenant exclusives?</p>
<p>• Tenant parking requirements?</p>
<p>• Automatic subordination of Lease to future mortgages?</p>
<p>• Other material Lease terms?</p>
<p>10. New Construction?</p>
<p>• Availability of construction permits?</p>
<p>• Soil conditions?</p>
<p>• Utilities?</p>
<p>• NPDES (National Pollutant Discharge Elimination System) Permit?</p>
<p>• Permit required if earth is disturbed on one acre or more of land.</p>
<p>• If applicable, Storm Water Pollution Prevention Plan (SWPPP) is required.</p>
<h2 class="wp-block-heading">II. THE SELLER:</h2>
<p>1. Who is the Seller?</p>
<p>• Individual?</p>
<p>• Trust?</p>
<p>• Partnership?</p>
<p>• Corporation?</p>
<p>• Limited Liability Company?</p>
<p>• Other legally existing entity?</p>
<p>2. If other than natural person, does Seller validly exist and is Seller in good standing?</p>
<p>3. Does the Seller own the Property?</p>
<p>4. Does Seller have authority to convey the Property?</p>
<p>• Board of Director Approvals?</p>
<p>• Shareholder or Member approval?</p>
<p>• Other consents?</p>
<p>• If foreign individual or entity, are any special requirements applicable?</p>
<p>• Qualification to do business in jurisdiction of Property?</p>
<p>• Federal Tax Withholding?</p>
<p>• US Patriot Act compliance?</p>
<p>5. Who has authority to bind Seller?</p>
<p>6. Are sale proceeds sufficient to pay off all liens?</p>
<h2 class="wp-block-heading">III. THE PURCHASER:</h2>
<p>1. Who is the Purchaser?</p>
<p>2. What is the Purchaser/Grantee’s exact legal name?</p>
<p>3. If Purchaser/Grantee is an entity, has it been validly created and is it in good standing?</p>
<p>• Articles or Incorporation – Articles of Organization</p>
<p>• Certificate of Good Standing</p>
<p>4. Is Purchaser/Grantee authorized to own and operate the Property and, if applicable, finance acquisition of the Property?</p>
<p>• Board of Director Approvals?</p>
<p>• Shareholder or Member approval?</p>
<p>• If foreign individual or entity, are any special requirements applicable?</p>
<p>• Qualification to do business in jurisdiction of the Property?</p>
<p>• US Patriot Act compliance?</p>
<p>• Bank Secrecy Act/Anti-Money Laundering compliance?</p>
<p>5. Who is authorized to bind the Purchaser/Grantee?</p>
<h2 class="wp-block-heading">IV. PURCHASER FINANCING:</h2>
<h3 class="wp-block-heading">A. BUSINESS TERMS OF THE LOAN:</h3>
<p>1. What loan terms have the Borrower and its Lender agreed to?</p>
<p>• What is the amount of the loan?</p>
<p>• What is the interest rate?</p>
<p>• What are the repayment terms?</p>
<p>• What is the collateral?</p>
<p>• Commercial real estate only?</p>
<p>• Real estate and personal property together?</p>
<p>• First lien?</p>
<p>• A junior lien?</p>
<p>• Is it a single advance loan?</p>
<p>• A multiple advance loan?</p>
<p>• A construction loan?</p>
<p>• If it is a multiple advance loan, can the principal be re-borrowed once repaid prior to maturity of the loan; making it, in effect, a revolving line of credit?</p>
<p>• Are there reserve requirements?</p>
<p>• Interest reserves?</p>
<p>• Repair reserves?</p>
<p>• Real estate tax reserves?</p>
<p>• Insurance reserves?</p>
<p>• Environmental remediation reserves?</p>
<p>• Other reserves?</p>
<p>2. Are there requirements for Borrower to open business operating accounts with the Lender? If so, is the Borrower obligated to maintain minimum compensating balances?</p>
<p>3. Is the Borrower required to pledge business accounts as additional collateral?</p>
<p>4. Are there early repayment fees or yield maintenance requirements (each sometimes referred to as “pre-payment penalties”)?</p>
<p>5. Are there repayment blackout periods during which Borrower is not permitted to repay the loan?</p>
<p>6. Is a profit participation payment to Lender required upon disposition?</p>
<p>7. Is there a Loan Commitment fee or “good faith deposit” due upon Borrower’s acceptance of the Loan Commitment?</p>
<p>8. Is there a loan funding fee or loan brokerage fee or other loan fee due Lender or a loan broker at closing?</p>
<p>9. What are the Borrower’s expense reimbursement obligations to Lender? When are they due? What is the Borrower’s obligation to pay Lender’s expenses if the loan does not close?</p>
<h3 class="wp-block-heading">B. DOCUMENTING THE COMMERCIAL REAL ESTATE LOAN</h3>
<p>Does Purchaser have all information necessary to comply with the Lender’s loan closing requirements?</p>
<p>Not all loan documentation requirements may be known at the outset of a transaction, although most commercial real estate loan documentation requirements are fairly typical. Some required information can be obtained only from the Seller. Production of that information to Purchaser for delivery to its lender must be required in the purchase contract.</p>
<p>As guidance to what a commercial real estate lender may require, the following sets forth a typical Closing Checklist for a loan secured by commercial real estate.</p>
<h2 class="wp-block-heading">Commercial Real Estate Loan Closing Checklist</h2>
<p>1. Promissory Note</p>
<p>2. Personal Guaranties (which may be full, partial, secured, unsecured, payment guaranties, collection guaranties or a variety of other types of guarantees as may be required by Lender)</p>
<p>3. Loan Agreement (often incorporated into the Promissory Note and/or Mortgage in lieu of being a separate document)</p>
<p>4. Mortgage (sometimes expanded to be a Mortgage, Security Agreement and Fixture Filing)</p>
<p>5. Assignment of Rents and Leases.</p>
<p>6. Security Agreement</p>
<p>7. Financing Statement (sometimes referred to as a “UCC-1”, or “Initial Filing”).</p>
<p>8. Evidence of Borrower’s Existence In Good Standing; including :</p>
<p>(a) Certified copy of organizational documents of borrowing entity (including Articles of Incorporation, if Borrower is a corporation; Articles of Organization and written Operating Agreement, if Borrower is a limited liability company; certified copy of trust agreement with all amendments, if Borrower is a land trust or other trust; etc.)</p>
<p>(b) Certificate of Good Standing (if a corporation or LLC) or Certificate of Existence (if a limited partnership) or Certificate of Qualification to Transact Business (if Borrower is an entity doing business in a State other than its State of formation)</p>
<p>9. Evidence of Borrower’s Authority to Borrow; including:</p>
<p>(a) Borrower’s Certificate</p>
<p>(b) Certified Resolutions</p>
<p>(c) Incumbency Certificate</p>
<p>10. Satisfactory Commitment for Title Insurance (which will typically require, for analysis by the Lender, copies of all documents of record appearing on Schedule B of the title commitment which are to remain after closing), with required commercial title insurance endorsements, often including:</p>
<p>(a) ALTA 3.1 Zoning Endorsement modified to include parking [although if the property is a multi-user property, such as a retail shopping center, an ALTA 3.0 Zoning Endorsement may be appropriate]
<p>(b) ALTA Comprehensive Endorsement 1</p>
<p>(c) Location Endorsement (street address)</p>
<p>(d) Access Endorsement (vehicular access to public streets and ways)</p>
<p>(e) Contiguity Endorsement (the insured land comprises a single parcel with no gaps or gores)</p>
<p>(f) PIN Endorsement (insuring that the identified real estate tax permanent index numbers are the only applicable PIN numbers affecting the collateral and that they relate solely to the real property comprising the collateral)</p>
<p>(g) Usury Endorsement (insuring that the loan does not violate any prohibitions against excessive interest charges)</p>
<p>(h) other title insurance endorsements applicable to protect the intended use and value of the col- lateral, as may be determined upon review of the Commitment for Title Insurance and Survey or arising from the existence of special issues pertaining to the transaction or the Borrower.</p>
<p>11. Current ALTA/ACSM Land Title Survey (3 sets), prepared in accordance with the 2011 (or current) Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys</p>
<p>12. Current Rent Roll</p>
<p>13. Certified copy of all Leases (4 sets – 1 each for Buyer, Buyer’s attorney, Title Company and Lender)</p>
<p>14. Lessee Estoppel Certificates</p>
<p>15. Lessee Subordination, Non-Disturbance and Attornment Agreements [sometimes referred to simply as “SNDAs”]
<p>16. UCC, Judgment, Pending Litigation, Bankruptcy and Tax Lien Search Report</p>
<p>17. Appraisal -complying with Title XI of FIRREA (Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended)</p>
<p>18. Environmental Site Assessment Report (sometimes referred to as Environmental Phase I and/or Phase 2 Audit Reports)</p>
<p>19. Environmental Indemnity Agreement (signed by Borrower and guarantors)</p>
<p>20. Site Improvements Inspection Report</p>
<p>21. Evidence of Hazard Insurance naming Lender as the Mortgagee/Lender Loss Payee; and Liability Insurance naming Lender as an “additional insured” (sometimes listed as simply “Acord 27 and Acord 25, respectively)</p>
<p>22. Legal Opinion of Borrower’s Attorney</p>
<p>23. Credit Underwriting documents, such as signed tax returns, property operating statements, etc. as may be specified by Lender</p>
<p>24. Compliance Agreement (sometimes also called an Errors and Omissions Agreement), whereby the Borrower agrees to correct, after closing, errors or omissions in loan documentation.</p>
<p class="has-text-align-center">* * * * *</p>
<p>It is useful to become familiar with the Lender’s loan documentation requirements as early in the transaction as practical. The requirements will likely be set forth with some detail in the lender’s Loan Commitment – which is typically much more detailed than most loan commitments issued in residential transactions.</p>
<p>Conducting the Due Diligence Investigation in a commercial real estate transaction can be time consuming and expensive in all events.</p>
<p>If the loan requirements cannot be satisfied, it is better to make that determination during the contractual “due diligence period” – which typically provides for a so-called “free out” – rather than at a later date when the earnest money may be at risk of forfeiture or when other liability for failure to close may attach.</p>
<h3 class="wp-block-heading">CONCLUSION</h3>
<p>Conducting an effective Due Diligence Investigation in a commercial or industrial real estate transaction to discover all material facts and conditions affecting the Property and the transaction is of critical importance.</p>
<p>Unlike owner occupied residential real estate, when a house can nearly always be occupied as the purchaser’s home, commercial and industrial real estate acquired for business use or for investment is impacted by numerous factors that may limit its use and value.</p>
<p>The existence of these factors and their impact on a Purchaser’s ability to use the Property as intended can only be discovered through diligent and focused investigation and attention to detail.</p>
<p>Exercise Due Diligence.</p>
<p>If you need assistance, please ask for help.</p>
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