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<title>industrial property – HARP – On This. . .</title>
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<title>New Year, New Office – Chicago</title>
<link>http://harp-onthis.com/new-year-new-office-chicago/</link>
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<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Sun, 19 Jan 2025 15:37:27 +0000</pubDate>
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<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[Illinois commercial lease]]></category>
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<description><![CDATA[R Kymn Harp Joins Buchalter – January 2025 Buchalter is pleased to announce the opening of its newest office in Chicago, Illinoiswith the addition of lawyers and staff previously comprising the Chicago office of Robbins DiMonte, Ltd joining Buchalter. The […]]]></description>
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<h2 class="wp-block-heading"><a href="https://www.buchalter.com/attorneys/r-kymn-harp/#overview">R Kymn Harp</a> Joins <a href="http://www.buchalter.com">Buchalter</a> – January 2025</h2>
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<p><a href="http://www.buchalter.com">Buchalter</a> is pleased to announce the opening of its newest office in Chicago, Illinois<br />with the addition of lawyers and staff previously comprising the Chicago office of Robbins DiMonte, Ltd joining <a href="http://www.buchalter.com">Buchalter</a>. The Chicago office has 25 attorneys and support staff, including Shareholders <strong>Thomas Jefson, Steven Jakubowski, Patrick Owens, David Resnick, R. Kymn Harp, James Mainzer, Justin Weisberg, and Thomas Yardley Jr. </strong> Joining them are Jennifer Barton, Emily Kaminski, Teresa Minnich, Christine Walsh, Marko Van Buskirk, Timothy Hameetman, and Richard Stavins. In addition,<strong> Shareholder <a href="https://www.buchalter.com/attorneys/pamela-kohlman-webster/#overview">Pamela Webster</a></strong> will also spend a significant amount of time in the Chicago office. The team of highly experienced attorneys have deep roots and a long history of achieving exceptional results for clients.</p>
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<p>“As the third-largest city in the country, having a Chicago office has been a long-term goal for the firm,”<br />said <a href="https://www.buchalter.com/attorneys/adam-j-bass/#overview">Adam Bass</a>, President and Chief Executive Officer of <a href="http://www.buchalter.com">Buchalter</a>. “The city’s thriving real estate,<br />financial services, private equity, and technology sectors, along with its ideal geographic location,<br />present tremendous opportunities and strengthens Buchalter’s national presence. Finding the right<br />lawyers was essential, and the highly respected group joining us in Chicago are an excellent business and<br />cultural fit.”</p>
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<p>Buchalter’s expansion into Chicago marks a strategic move as the firm continues to bolster its national<br />footprint in key markets across the country. The firm established a presence in the Southeast with the<br />opening of its Nashville office in 2023 that has grown to 25 lawyers, followed by an office in Atlanta in 2024.</p>
<p>With the additions of the new lawyers in Chicago, the firm offers clients a deeper bench in practices it is well-known for, including real estate, banking and finance capabilities, trusts and estate matters, and complex litigation. </p>
<p>As the Office Managing Shareholder of Buchalter’s Chicago office, <strong><a href="https://www.buchalter.com/attorneys/thomas-a-jefson/#overview">Thomas Jefson </a></strong>has extensive experience handling all aspects of complex trust and estate matters including, estate planning for High and Ultra-High Net Worth families, asset protection, probate and trust administration services, complex litigation involving disputed trusts and estates, claims against decedents as well as designing strategies to maximize tax savings. As a trusted legal advisor for over 22 years, Jefson regularly represents families, business owners and executives, investors, and individuals in sophisticated matters to preserve wealth and protect assets that help achieve their objectives for years to come. Additionally, he counsels financial institutions, business leaders within diverse industries in the areas of tax planning, charitable endeavors, fiduciary duty compliance, and other business transactional matters. </p>
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<p>“We are thrilled to join Buchalter, and I’m honored to lead the Chicago office,” said Jefson. “Joining<br />Buchalter provides us with the perfect opportunity to strengthen the support we provide to our clients, expand the services they count on, and collaborate with an impressive team of attorneys.”</p>
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<p><strong><a href="https://www.buchalter.com/attorneys/r-kymn-harp/#overview">R. Kymn Harp</a></strong> has over 40 years of experience representing investors, developers, business owners, and<br />other stakeholders in all aspects of commercial real estate transactions and development. He applies a<br />practical approach to project and transaction management through clear identification of transaction<br />objectives and challenges, focused due diligence and creative problem-solving, and personal hands-on<br />transaction management. He also is actively engaged in the complementary practice of business<br />management law, representing businesses, and business owners and investors.</p>
<p><strong><a href="https://www.buchalter.com/attorneys/james-m-mainzer/#overview">James Mainzer</a></strong> also has over 40 years of experience practicing in the areas of taxation, business<br />representation, real estate, and trusts and estates. His federal tax practice includes a heavy emphasis on<br />sophisticated partnership taxation and tax deferred exchanges. He represents private sector clients in<br />tax collection defense, audit, income tax, and estate tax matters. He also has substantial experience<br />dealing with IRS agents, revenue officers and IRS tax counsel regarding audits, tax appeals, and Federal<br />Tax Court matters.</p>
<p><strong><a href="https://www.buchalter.com/attorneys/david-p-resnick/#overview">David Resnick</a> </strong>maintains a national practice concentrated in commercial real estate development, and<br />leasing and finance matters. He has over 24 years of experience handling all facets of commercial real<br />estate transactions, including the acquisition, sale, financing and leasing of industrial, office, residential,<br />retail and mixed-use properties. He also provides legal services to hospitality clients with respect to their<br />real estate, finance and operational matters.</p>
<p><strong><a href="https://www.buchalter.com/attorneys/steve-jakubowski/#overview">Steve Jakubowski</a> </strong>concentrates his practice in distressed financings and workouts, bankruptcies,<br />receiverships, and related ancillary litigation. He has been lead and co-counsel in bankruptcy cases<br />nationwide, stretching from Delaware to Hawaii, including in multiple high profile cases nationwide on behalf of lenders, debtors, creditors and equity committees, acquirers, and litigation targets. These matters have involved a variety of industries, including: biotech; commercial real estate; premium fitness clubs; farming; department stores; restaurant chains; convenience stores; metal fabricators; equipment lessors; and wholesale food manufacturing, packaging, and distribution.</p>
<p><strong><a href="https://www.buchalter.com/attorneys/patrick-d-owens/#overview">Patrick Owens</a></strong> possesses extensive expertise in estate planning for young professionals to established<br />high net worth clients. This experience also extends to managing a diverse array of estates, from<br />modest, nontaxable ones to those that are significantly large and complex, involving tax liabilities. His<br />involvement spans the full spectrum of trust and estate administration and oversight. He expertly<br />navigates these trusts and estates through their lifecycle, handling or overseeing all requisite income,<br />gift, and estate tax filings with meticulous attention to detail.</p>
<p><a href="https://www.buchalter.com/attorneys/justin-l-weisberg/#overview"><strong>Justin Weisberg</strong> </a>has over 30 years of legal experience with a national construction law and commercial<br />litigation practice. He represents private, public, local, and international clients in a variety of<br />construction-related transactions and litigation matters. His legal experience has included contract<br />negotiation and drafting of design, design-build, IPD, P3, and construction contracts as well as<br />mediation, arbitration and litigation including both bench and jury trials of numerous disputes involving<br />design and construction matters.</p>
<p><strong><a href="https://www.buchalter.com/attorneys/thomas-p-yardley-jr/#overview">Thomas Yardley Jr.</a></strong> concentrates his practice in the areas of litigation, business transactions, creditors’<br />rights and bankruptcy, and employment and construction law. With over 30 years of experience, he has<br />handled diverse litigation matters for small business owners, high net worth individuals and<br />corporations. He has successfully represented clients in both state and federal court including:<br />commercial and contractual disputes, corporate litigation, minority shareholder oppression matters,<br />other employment cases, construction matters, condominium and real estate disputes, bankruptcy and<br />creditors’ rights matters, among others.</p>
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<p>“We are thrilled to welcome Tom and the entire Chicago team to Buchalter,” added Bass. “We have<br />immediate plans to expand the office and are looking forward to the future.”</p>
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<p>The Chicago office of Buchalter is located in Chicago’s central business district, at 180 N. LaSalle St., Chicago, Illinois 60601 – temporarily in Suite 3300, while it awaits completion of its new ultra-modern suite of offices on the 23rd floor of the same building, expected to be ready for occupancy in late Spring 2025,</p>
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<p><a href="http://“As the third-largest city in the country, having a Chicago office has been a long-term goal for the firm,” said Adam Bass, President and Chief Executive Officer of Buchalter. “The city’s thriving real estate, financial services, private equity, and technology sectors, along with its ideal geographic location, present tremendous opportunities and strengthens Buchalter’s national presence. Finding the right lawyers was essential, and the highly respected group joining us in Chicago are an excellent business and cultural fit.”://www.buchalter.com">Buchalter</a> is a full-service business law firm representing local, regional, national, and international<br />clients in a multitude of practice areas and their subspecialties, among them: Bank and Finance,<br />Corporate, Health Care, Litigation, Insolvency and Financial Law, Intellectual Property, Labor and<br />Employment, Real Estate, and Tax and Estate Planning. Buchalter has approximately 550 attorneys with<br />offices in California, Arizona, Colorado, Georgia, Illinois, Oregon, Tennessee, Utah, and Washington. For<br />more information about the firm, visit:<a href="http://www.buchalter.com"> buchalter.com</a>.</p>
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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>
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<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>
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<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>
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<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>
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<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>
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<post-id xmlns="com-wordpress:feed-additions:1">1173</post-id> </item>
<item>
<title>SECTION 1031 EXCHANGE BASICS – Planning for 2021</title>
<link>http://harp-onthis.com/section-1031-exchange-basics-planning-for-2021/</link>
<comments>http://harp-onthis.com/section-1031-exchange-basics-planning-for-2021/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Fri, 01 Jan 2021 09:12:00 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[#CREbasics]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[2021]]></category>
<category><![CDATA[attorney]]></category>
<category><![CDATA[buying real estate]]></category>
<category><![CDATA[Chicago]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[Illinois]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[investing in real estate]]></category>
<category><![CDATA[investment property]]></category>
<category><![CDATA[like-kind exchange]]></category>
<category><![CDATA[NNN]]></category>
<category><![CDATA[planning for 2021]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[real estate lawyer]]></category>
<category><![CDATA[Section 1031 exchanges]]></category>
<category><![CDATA[selling real estate]]></category>
<category><![CDATA[tax deferred exchange]]></category>
<category><![CDATA[tax free exchange]]></category>
<category><![CDATA[tax planning]]></category>
<category><![CDATA[tax savings]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1605</guid>
<description><![CDATA[Prediction: Tax rates will rise, and property values will increase in 2021 and beyond. IRC Section 1031 allows real estate sellers to defer payment of taxes . . . possibly forever. ]]></description>
<content:encoded><![CDATA[
<p><strong><em><u>PREDICTION</u></em></strong><strong><em>: Tax rates will rise, and property values will increase.</em></strong></p>
<p><strong><em>IRC Section 1031 allows sellers of qualifying real estate to exchange it for like-kind real estate and defer payment of taxes. . . possibly forever.</em></strong></p>
<div class="wp-block-image is-style-rounded">
<figure class="aligncenter 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=180%2C201" alt="" class="wp-image-1527" width="180" height="201" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/09/Harp-Photo-Sept.-2019-less-than-2MB.png?w=360 360w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/09/Harp-Photo-Sept.-2019-less-than-2MB.png?resize=269%2C300 269w" sizes="(max-width: 180px) 100vw, 180px" /><figcaption class="wp-element-caption">R. Kymn Harp</figcaption></figure></div>
<h3 class="wp-block-heading"><strong>WHAT IS A TAX-DEFERRED EXCHANGE?</strong></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="1913" data-permalink="http://harp-onthis.com/section-1031-exchange-basics-planning-for-2021/section-1031/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/section-1031.jpg?fit=1024%2C671" data-orig-size="1024,671" 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="section-1031" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/section-1031.jpg?fit=300%2C197" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/section-1031.jpg?fit=1024%2C671" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/section-1031.jpg?resize=400%2C261" alt="section 1031" class="wp-image-1913" width="400" height="261" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/section-1031.jpg?w=1024 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/section-1031.jpg?resize=300%2C197 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/section-1031.jpg?resize=768%2C503 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>Section 1031 of the Internal Revenue Code allows any real estate in the USA held for investment or for use in the taxpayer’s trade or business to be exchanged for other like-kind property without payment of federal income taxes. Most states tax codes provide likewise. There are technical rules for completing the exchange, but it is a straightforward process with clear-cut rules expressly authorized by law.</p>
<p>Taxes that can be deferred include all capital gains taxes, all depreciation recapture taxes, all passive-investment taxes (so called “Obamacare taxes”), and, in most cases, state income taxes. In many circumstances, these taxes can add up to in excess of 30%. Instead of paying taxes, why not reinvest those funds as equity in another like-kind property instead, and continue to receive an investment return on those funds?</p>
<h3 class="wp-block-heading"><strong>HOW IS <em>LIKE-KIND</em> PROPERTY DEFINED?</strong></h3>
<ul class="wp-block-list">
<li>A concept that is often misunderstood is “like-kind” property. The definition is much broader and simpler that some might expect. Basically, any real estate located in the USA and held for investment or for use in the taxpayer’s trade or business can be exchanged for any other USA real estate held for investment or for use in the taxpayer’s trade or business without paying taxes. That means, for example:</li>
</ul>
<div class="wp-block-group"><div class="wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained">
<div class="wp-block-group"><div class="wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained">
<ul class="wp-block-list">
<li>An apartment building could be exchanged for a warehouse, retail store, or farm, and <em>vice versa</em>. </li>
<li>Vacant land held for investment could be exchanged for a shopping center. </li>
<li>An apartment building could be exchanged for an office building. </li>
</ul>
</div></div>
</div></div>
<p>The physical use of the real estate is not what makes it like-kind; rather, all real estate located in the USA is like-kind to all other real estate located in the USA. Likewise, foreign real estate is like-kind to other foreign real estate, but it is not like-kind to USA real estate. The condition is that (i) the real estate being sold must have been held for investment or for use in the taxpayer’s trade or business, and not held primarily for resale, and (ii) the real estate being acquired must likewise be acquired for investment purposes or for use in the taxpayer’s trade or business and not primarily for resale.</p>
<h3 class="wp-block-heading"><strong>ARE THERE TIME CONSTRAINTS?</strong></h3>
<p>At the time of closing, the taxpayer does not need to know exactly what property will replace the property being sold. The taxpayer has 45 days to identify potential replacement property, and up to 180 days after closing to acquire the replacement property. A key, however, is that the selling taxpayer cannot come into physical or constructive possession of the sale proceeds during the exchange period. To satisfy this condition, the seller will designate a qualified intermediary to hold the funds under an exchange trust agreement. This can be done quickly, often within a day or two before closing if necessary. Although the seller/taxpayer does not have the right to access the funds during the exchange period, the seller/taxpayer does have the right to direct the qualified intermediary to apply the funds toward the taxpayer’s purchase of any replacement property which is identified by the taxpayer during the 45-day identification period.</p>
<p>For all taxes to be deferred, the entire sale proceeds of the real estate being sold must be used to acquire the replacement property. For this purpose, “sale proceeds” includes all cash received at closing and any mortgage indebtedness that was paid off.</p>
<h3 class="wp-block-heading"><strong>INCIDENTAL PERSONAL PROPERTY</strong></h3>
<p>Prior to January 1, 2018 tax-deferred exchanges of certain personal property were also permitted. The 2017 Tax Cuts and Jobs Act, effective January 1, 2018, ended this practice and limited tax-deferred like-kind exchanges to only real property. This raised concerns as to whether certain personal property commonly incidental to a sale of commercial property, such as appliances, carpeting, HVAC systems, security systems, Wi-Fi systems, trade fixtures, etc. would disqualify an exchange for tax deferral, or constitute taxable “boot”.</p>
<p>Under <a href="https://www.federalregister.gov/documents/2020/12/02/2020-26313/statutory-limitations-on-like-kind-exchanges" data-type="URL" data-id="https://www.federalregister.gov/documents/2020/12/02/2020-26313/statutory-limitations-on-like-kind-exchanges" target="_blank" rel="noreferrer noopener">Final Regulations</a> published by the Treasury Department effective December 2, 2020, personal property that is incidental to real property acquired in an exchange will be disregarded and may therefore be included as part of the tax-deferred exchange. Personal property is considered “incidental” in commercial transactions if (a) it is the type of personal property typically transferred together with real property, and (b) the aggregate fair market value of the personal property transferred with the real property does not exceed 15% of the aggregate fair market value of the replacement real property received in exchange. </p>
<h2 class="wp-block-heading"><strong>ADVANTAGES AND DISADVANTAGES</strong></h2>
<p>There are many advantages and not many disadvantages to structuring a sale as a tax-deferred exchange. The rules are technical but not very difficult to apply. It has virtually no impact on the buyer and provides extraordinary benefits to the seller.</p>
<p>For a real estate lawyer, besides providing a great service to your clients, an exchange provides a direct lead-in to the next transaction with an opportunity to handle the purchase of replacement property of equal or greater value that must close within 180 days.</p>
<p>Our tax code provides this benefit; it is up to real estate professionals to take advantage.</p>
<p><em>Thanks for listening . . .</em></p>
<p><em>Kymn</em></p>
<figure class="wp-block-image size-large"><img data-recalc-dims="1" loading="lazy" decoding="async" width="578" height="339" data-attachment-id="1540" data-permalink="http://harp-onthis.com/rsp-50th-anniversary/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/12/RSP-50th-Anniversary.jpg?fit=578%2C339" data-orig-size="578,339" 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="RSP 50th Anniversary" data-image-description="" data-image-caption="<p>Celebrating 50 Years of Excellence!</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/12/RSP-50th-Anniversary.jpg?fit=300%2C176" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/12/RSP-50th-Anniversary.jpg?fit=578%2C339" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/12/RSP-50th-Anniversary.jpg?resize=578%2C339" alt="" class="wp-image-1540" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/12/RSP-50th-Anniversary.jpg?w=578 578w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2019/12/RSP-50th-Anniversary.jpg?resize=300%2C176 300w" sizes="auto, (max-width: 578px) 100vw, 578px" /><figcaption class="wp-element-caption">Celebrating 50 Years of Excellence!</figcaption></figure>
]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">1605</post-id> </item>
<item>
<title>A PASSION FOR (REAL ESTATE) BUSINESS</title>
<link>http://harp-onthis.com/passion-real-estate-business/</link>
<comments>http://harp-onthis.com/passion-real-estate-business/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 13 Nov 2017 21:45:41 +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[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[keys to closing]]></category>
<category><![CDATA[project entitlement]]></category>
<category><![CDATA[property]]></category>
<category><![CDATA[public-private partnership]]></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=1380</guid>
<description><![CDATA[Lawyers are like most other business professionals. We want your business and we want your referrals – we just don’t always know the best way to ask for either. Take me for example. I’ve been handling commercial real estate transactions […]]]></description>
<content:encoded><![CDATA[
<p>Lawyers are like most other business professionals. We want your business and we want your referrals – we just don’t always know the best way to ask for either.</p>
<div class="wp-block-image">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="250" height="222" data-attachment-id="1379" data-permalink="http://harp-onthis.com/passion-real-estate-business/kymn_harp/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2017/11/Kymn_Harp.png?fit=250%2C222" data-orig-size="250,222" 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="Kymn_Harp" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2017/11/Kymn_Harp.png?fit=250%2C222" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2017/11/Kymn_Harp.png?fit=250%2C222" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2017/11/Kymn_Harp.png?resize=250%2C222" alt="" class="wp-image-1379"/></figure></div>
<p>Take me for example. I’ve been handling commercial real estate transactions and business deals for nearly 40 years. I’ve loved (almost) every day of it, and I look forward to many more (knock on wood). My clients appreciate my insights and value the guidance I provide. Other attorneys respect what I do, and brokers and CPAs like working with me because I strive for practical solutions to efficiently and effectively get the job done. I pay close attention to learn my clients’ business objectives, then work diligently and negotiate hard to get my clients what they expect – when they expect it. That’s what lawyers do. Or at least what all lawyers should do. For any client hiring a lawyer, what else is there? Achieving client objectives and getting the deal closed on time is why lawyers exist. Deals fail, for sure, but we can never be the reason they fail. Deals that fail are a waste of everyone’s time and money. Getting the deal done, if it can be done, is our value proposition.</p>
<p>Deals are my lifeblood – my passion. They’re why I wake up every morning and get out of bed. I love this stuff. I can’t explain exactly why that is – it just is. Why do musicians practice their instruments and play? Why do scratch golfers golf? Why do competitive skiers ski? It’s our passion. We don’t know exactly why – it comes from within. And we always need more.</p>
<p>Commercial real estate deals always come first for me, but in every commercial real estate project is a business. They go hand in hand. My preference for a good real estate deal over a good business deal is a matter of only slight degree. There’s not really a number one and a number two. It’s more like #1 and #1A.</p>
<p>So what’s the problem?</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="1807" data-permalink="http://harp-onthis.com/passion-real-estate-business/businesspropertyrealestateandinvestmentconceptswithinvestorandwhite/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.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) 2021 HAKINMHAN\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Business,Property,real,Estate,And,Investment,Concepts,With,Investor,And,White","orientation":"1"}" data-image-title="Business,Property,real,Estate,And,Investment,Concepts,With,Investor,And,White" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.jpg?resize=1000%2C667" alt="business property,real estate and investment" class="wp-image-1807" style="width:400px;height:267px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/business-propertyreal-estate-and-investment.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 1000px) 100vw, 1000px" /></figure></div>
<p>The problem is, a lot of people don’t know I’m available to represent them. I write books and articles on commercial real estate. I give seminars on how to structure and close business and real estate transactions. I publish a commercial real estate and business blog. People think I’m busy, or that I only handle huge deals. The truth is, I <em>am</em> busy – but never too busy to handle another deal, large or small. In the words of the late, great Lucille Ball: “<em>If you want something done, ask a busy person to do it</em>.” We all loved Lucy!</p>
<p>The most shocking question I get from prospective clients is: “<em>Would you (I) be willing to handle my (their) next business or commercial real estate deal?</em>” Are they kidding? My answer is always an emphatic “<em>yes</em>”! It’s my passion. It’s my love. It’s what I live for.</p>
<p>To be sure, I’m a business professional, and I charge for what I do, but if you have a commercial real estate deal or business deal, and need representation, I’m in. Never be shy about calling me. We’ll work out the economics. The range of deals I handle is extraordinarily diverse. For a taste, look at my blog <a href="http://www.harp-onthis.com">Harp-OnThis.com,</a> or check out my latest book, Illinois Commercial Real Estate on<a href="https://www.amazon.com/Illinois-Commercial-Real-Estate-Kymn/dp/1524535095"> Amazon.com</a> or in your local public library. I love this stuff. I need this stuff. Of course I want to represent you. When can we get started?</p>
<p>So back to my initial point: I do want your business and your business referrals. Like many other business professionals, I just don’t know the best way to go about asking for it. What do you suggest?</p>
]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">1380</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>
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<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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<post-id xmlns="com-wordpress:feed-additions:1">1338</post-id> </item>
<item>
<title>AIR RIGHTS DEVELOPMENT – Chicago, Illinois</title>
<link>http://harp-onthis.com/developing-chicago-air-rights/</link>
<comments>http://harp-onthis.com/developing-chicago-air-rights/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Fri, 08 Jul 2016 21:22:00 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[adaptive reuse]]></category>
<category><![CDATA[air rights]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[project entitlement]]></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=1314</guid>
<description><![CDATA[WHY DEVELOP AIR RIGHTS? Prime commercial land is limited. Prices per square foot can be astronomical. Demand for efficiency to maximize return on investment is growing. No wonder developers and property owners are looking to the sky, with varying degrees […]]]></description>
<content:encoded><![CDATA[
<h2 class="wp-block-heading">WHY DEVELOP AIR RIGHTS?</h2>
<p>Prime commercial land is limited. Prices per square foot can be astronomical. Demand for efficiency to maximize return on investment is growing. No wonder developers and property owners are looking to the sky, with varying degrees of success, to capture all the value they can from each urban parcel. Air rights development may be the solution you are looking for.</p>
<div class="wp-block-image">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="216" height="300" data-attachment-id="103" data-permalink="http://harp-onthis.com/developing-chicago-air-rights/httpwww-dreamstime-comstock-image-chicago-skyline-image2898031/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_2898031-licensed.jpg?fit=1469%2C2040" data-orig-size="1469,2040" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"(c) Russiangal | Dreamstime.com","focal_length":"0","iso":"0","shutter_speed":"0","title":"http:\/\/www.dreamstime.com\/stock-image-chicago-skyline-image2898031"}" data-image-title="http://www.dreamstime.com/stock-image-chicago-skyline-image2898031" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_2898031-licensed.jpg?fit=216%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_2898031-licensed.jpg?fit=737%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_2898031-licensed.jpg?resize=216%2C300" alt="http://www.dreamstime.com/stock-image-chicago-skyline-image2898031" class="wp-image-103" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_2898031-licensed.jpg?resize=216%2C300 216w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_2898031-licensed.jpg?resize=737%2C1024 737w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_2898031-licensed.jpg?w=1469 1469w" sizes="auto, (max-width: 216px) 100vw, 216px" /></figure></div>
<p>Owners and developers, and people in general, are conditioned to think of potential development sites as flat surfaces with essentially two dimensions: north/south and east/west. They see only the surface of the land, and envision the building they will construct for the particular purpose they have in mind; a bank, a drugstore, a restaurant, a strip mall, a parking garage, an office building. If the parcel is larger than they need, they may envision subdividing the parcel to make two or more lots. In most cases, however, they think primarily in terms of land coverage for the type of building they need. They visualize only the two dimensional space depicted on their Site Plan or Plat of Survey.</p>
<p>In 30 out of 50 states, including Illinois and all other Mid-Western states, the “Rectangular Survey System” is in effect. The Rectangular Survey System was adopted in 1785 to meet the needs of the Federal Government as it faced the challenge of dividing vast areas of undeveloped land lying west of the original 13 colonies. The system, developed under the direction of Thomas Jefferson, essentially divides the United States into rectangles, measured in relation to lines known as Meridians and Base Lines.</p>
<p>Development lots are instinctively viewed as the two-dimensional surface of land visually representing a potential development parcel. Descriptions of a parcel typically refer to “a parcel of land X feet by Y feet” located in relation to an intersection or other identifiable landmark.</p>
<p>Once a parcel is “developed”, or designated for development, by construction of improvements on the land, it is natural to think of the parcel as being unavailable for further development (unless the existing improvements are to be demolished).</p>
<p>Classic examples of this are single story commercial buildings at prime commercial locations, a multi-deck parking garage or mid-rise building in a downtown development area, railroad tracks or spurs cutting across valuable urban land and, in some cases, roadways and alleys.</p>
<p>Each of these situations represent, potentially, under-utilization of valuable real estate. Finding a way to develop the “air” above these existing or planned improvements maximizes the economic utility of these parcels and can be like creating “<em>money from thin air</em>.”</p>
<p>The practice of finding ways to utilize the “space above” is often referred to as “air rights development”. Air rights development requires thinking in three dimensions, and requires serious design consideration and legal planning but, when land values are at a premium and zoning permits, the economic return may be dramatic.</p>
<p>Though often overlooked, virtually all of Chicago’s downtown business district is a “<em>city in the air</em>“. People tend to think of streets and street level entrances to buildings in the downtown Chicago “loop” as being at “ground level”. This is simply not the case. Most of what is thought of in the Chicago Loop as being at “ground level” is located 12 to 22 feet above the earth’s surface. This explains the vast network of “lower” streets and passageways in downtown Chicago, such as “Lower Wacker Drive”, “Lower Dearborn Street”, “Lower State Street”, etc. which most people seldom traverse. It also explains why, in 1992, the Chicago Loop business district was virtually shut down by “the Great Loop Flood of ’92”, but few people got wet or even saw any water as office and retail buildings were closed and workers were sent home because of “flooding”.</p>
<p>The point of these observations is to reveal that “development of air rights” is not new. It is also not “. . . some exotic legal manipulation of doubtful efficacy dreamed up by big city lawyers for use only in big cities”. Development of so-called “air rights” is little more than efficient use of a limited resource when use becomes economically feasible and beneficial.</p>
<h2 class="wp-block-heading">WHAT ARE “AIR RIGHTS”?</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="1785" data-permalink="http://harp-onthis.com/developing-chicago-air-rights/lookingupatthecitysdenserealestateproperties/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/looking-up-at-the-citys-dense-real-estate-properties.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) 2019 Lili.Q\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Looking,Up,At,The,City's,Dense,Real,Estate,Properties","orientation":"1"}" data-image-title="Looking,Up,At,The,City’s,Dense,Real,Estate,Properties" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/looking-up-at-the-citys-dense-real-estate-properties.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/looking-up-at-the-citys-dense-real-estate-properties.jpg?fit=1000%2C668" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/looking-up-at-the-citys-dense-real-estate-properties.jpg?resize=400%2C267" alt="looking up at the city's dense real estate properties" class="wp-image-1785" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/looking-up-at-the-citys-dense-real-estate-properties.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/looking-up-at-the-citys-dense-real-estate-properties.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/looking-up-at-the-citys-dense-real-estate-properties.jpg?resize=768%2C513 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>“Air rights” are part of the “bundle of rights” constituting fee simple title to real estate. The term “air rights” generally refers to the right of the owner of fee simple title of a parcel of land to use the space above the land. If this right did not exist, it would not be possible to </p>
<span id="more-1314"></span>
<p>construct improvements on the land, such as a home, fence or other structure above the surface of the land. While the ancient common law doctrine that “ownership of land extends to the periphery of the universe” has been limited to accommodate the modern world realities of air-travel, the fundamental concept that land ownership includes the right to use and occupy the airspace above the surface of the land is well established.</p>
<p>As one of the bundle of property rights comprising fee simple title to real estate, “air rights” may also be “unbundled” and alienated separate from other rights in the bundle. Conceptually, from a legal standpoint, the separation and transfer of so-called “air rights” is not materially different from subdividing and transferring a lot pictured in only two dimensions. Instead of subdividing and selling off, for example, “that part of Lot 1 lying east of the west 100 feet of Lot 1” as depicted on a plat of survey, the transfer of air rights subdivides and transfers a parcel based upon its vertical elevation. For example, one might subdivide and transfer “that part of Lot 1 lying above a horizontal plane located 100 feet above [some benchmark elevation].</p>
<p>By dividing a development parcel “vertically”, it is often possible to “stack” uses in a mixed use development owned by more than one owner or developer, in the same way it is possible to subdivide and develop side-by-side a horizontal surface subdivision. In some cases, without even developing the open air above existing or planned improvements, it is possible to sell and transfer “air rights” to an adjacent property owner to allow construction of a taller building on an adjacent building site. Recognizing this potential can result in a substantial economic windfall to a property owner otherwise under-utilizing a valuable development parcel.</p>
<p>Air rights development is a combination of black letter real estate law and the applicable zoning code of the community in which your property is located. Because zoning codes are legislative pronouncements, they are subject to change as local city councils determine appropriate. For this reason, the current zoning classification for every project, and certainly for any project involving “air rights development” must be examined at the beginning of each transaction as part of the due diligence investigation.</p>
<h3 class="wp-block-heading"><strong><em>Hypothetical Facts</em></strong><strong>:</strong></h3>
<p>Suppose you are planning to acquire a 20,000 square foot parcel in Chicago, Illinois zoned DC-12 or DX-12. Your purchase price is $4,500,000. You believe it is a perfect location for a restaurant-banquet-entertainment complex serving food and liquor, with live entertainment and dancing. You visualize a state of the art venue spread out over 2 floors, with about 19,000 square feet of usable space per floor, for a total restaurant-banquet-entertainment venue of 38,000 square feet. Fortunately, adequate parking is close by and available. Demand for offices and condominium housing is growing in the vicinity of your parcel, which you believe will further enhance the chances of success of your planned business by bringing more customers through your doors. Although you recognize development of offices and condominiums in your area is a “hot” development opportunity and might also be an excellent investment, you have no interest or experience in developing offices or condominiums and really just want to develop and open your dream restaurant-banquet-entertainment complex. You have calculated your costs of construction and operation, and believe the project is economically feasible, although you would like to find a way to cut your costs or otherwise increase your return on investment.</p>
<p><em>Consider this</em>: The restaurant-banquet-entertainment complex you wish to construct is a permitted use in the applicable zoning classification under the Chicago Zoning Ordinance. Also permitted is a wide array of other business and service uses, as well as dwelling units as long as the dwelling units are not below the second floor.</p>
<p>The permitted floor area ratio (F.A.R.) for a parcel zoned as a DC-12 or DX-12 zoning classification under the Chicago Zoning Ordinance is 12; which means that the total square footage of the building or buildings permitted on your 20,000 square foot parcel is 240,000 square feet. You are utilizing only 38,000 square feet, which means, from a zoning standpoint at least, you are under-utilizing your parcel to the extent of 202,000 square feet.</p>
<h3 class="wp-block-heading"><em>Making Money from Thin Air</em></h3>
<p>Suppose you were able to reconfigure your proposed project to free up 1000 to 1200 square feet per floor in return for recovering half (or more) of your total land cost.</p>
<p>If this were possible, your restaurant/banquet/entertainment complex may be reduced in size to 36,000 square feet instead of 38,000 square feet, but your development cost for the project would be reduced $2,000,000 or more. Almost free money.</p>
<h4 class="wp-block-heading"><em>How could this work? </em></h4>
<p><strong><em>Scenario No. 1</em></strong>: With the hypothetical facts presented, it is certainly within the realm of possibilities to market and sell the “air space” above your proposed restaurant-banquet-entertainment complex for development of offices and/or condominiums. As mentioned, under the applicable zoning classification, 202,000 square feet remains available for development on your site. Assume prevailing land values of $225 per square foot (represented by your purchase price of $4,500,000 for a 20,000 square foot parcel), a condominium/office developer may well view your “air space parcel” as a bargain at $2,000,000 ($100 per square foot – measured in two dimensions for 20,000 square feet) since it would still enable construction of 202,000 square feet of floor area above the second floor.</p>
<p>Obviously, to make the “air space” usable, adequate means of access and support must be planned, which will require detailed planning for design and construction of both the ground level parcel and the “air space” parcel (which do not necessarily need to be constructed at the same time, although simultaneous construction may be more efficient and practical) and creation of legally sufficient easements of support, and easements for ingress and egress, utilities, loading and unloading, mail delivery, a street level lobby, elevators, standpipes, etc., as well as drafting of development specific covenants running with the land to promote non-interference and compatibility of use of each parcel. The necessity for easements of support, and easements (or conveyance of fee parcels) for a street level lobby, mail delivery areas, and loading and unloading areas, is the reason slight reduction in size of the proposed restaurant/banquet/entertainment complex is suggested in the premise to Scenario No. 1 – to free up space for these purposes.</p>
<p>While sale of an “air rights parcel” will require added expense for engineering (much of which will likely be undertaken by the proposed developer of the air rights parcel) and attorneys’ fees to negotiate and draft a workable declaration of easements, covenants and restrictions to legally facilitate the development and use of each parcel, the economic advantage of being able to sell the air rights parcel may more than justify the added effort and development expense involved.</p>
<p><em><strong>Scenario No. 2</strong>.</em> Assume the same hypothetical facts as in Scenario No. 1, except that instead of being the owner of the parcel referred to in Scenario No. 1 (the “Entertainment Parcel”), you own or wish to develop a parcel adjacent to the Entertainment Parcel. Perhaps the Entertainment Parcel has already been developed with the restaurant-banquet-entertainment complex referred to in Scenario No. 1. Assume your parcel (the “High Rise Parcel”) is 40,000 square feet with a zoning, classification that allows a floor area ratio (F.A.R.) of 12, and you wish to construct (or to sell your parcel to a developer to construct) a mixed-use development with first floor retail, five floors of office space and six floors of luxury condominiums. Because zoning for the High Rise Parcel allows an F.A.R. of 12, you determine a twelve-story, 480,000 square foot building is the maximum you will be able to construct on your 40,000 square foot lot.</p>
<p>In conducting a financial analysis of your project you determine that the marginal cost of each floor would result in you generating a substantially greater return on your investment if you were able to construct additional floors of office space, condominiums or even multi-level parking in your proposed project on the High Rise Parcel. Still, you are faced with the maximum F.A.R. of 12 for the High Rise Parcel as established by the Chicago Zoning Ordinance.</p>
<p>Is there a solution?</p>
<p>Perhaps. . .</p>
<h3 class="wp-block-heading">Maximizing the Development Opportunity</h3>
<p>The Chicago Zoning Ordinance defines a “Zoning Lot” as follows: “<em>A ‘zoning lot or lots’ is a single tract of land located within a single block, which (at the time of filing for a building permit) is designated by its owner or developer as a tract to be used, developed, or built upon as a unit, under single ownership or control.</em>”</p>
<p>Therefore, ‘zoning lot or lots’ may or may not coincide with a lot of record.</p>
<p>One solution is that the owner of the High Rise Parcel might acquire the “air rights” over the Entertainment Parcel (by purchasing from the owner of the Entertainment Parcel, “. . . all of the Entertainment Parcel except that part thereof lying below a horizontal plane located x feet above the Chicago City Datum”) and then designate the Entertainment Parcel as part of the Zoning Lot to be developed and controlled by the developer of the High Rise Parcel. The “Zoning Lot” would then be 60,000 square feet. Because the F.A.R. remains 12, the maximum floor area on the total Zoning Lot is 720,000 square feet.</p>
<p>Because 38,000 square feet has been used (or is to be used) for the restaurant/banquet/entertainment complex, 682,000 square feet remains available for development on the Zoning Lot (being, in effect, the High Rise Parcel). Therefore, instead of being able to construct only a 480,000 square foot project on the High Rise Parcel, if developed alone, the developer would now be able to construct up to an additional 202,000 square feet (for a total of 682,000 square feet) on the High Rise Parcel – or, roughly, 5 additional floors at 40,000 square feet each, because the High Rise Parcel and the Entertainment Parcel, collectively, constitute the “Zoning Lot”. (Note, however, that some zoning districts also have a “maximum height” restriction so, once again, it is critical that you carefully review the applicable zoning ordinance in all particulars.)</p>
<p>* * *</p>
<p>Of course, if the developer does construct 682,000 square feet of floor area on the High Rise Parcel (in addition to the 38,000 square feet constructed on the Entertainment Parcel) under the foregoing Scenario No. 2, all floor area available for development of the combined Zoning Lot pursuant to the zoning ordinance will have been fully utilized. As a result, since the Zoning Lot is fully developed as a whole, no further opportunity exists to expand the square footage of improvements on the Entertainment Parcel. If the restaurant/banquet/entertainment complex fails, or is destroyed or otherwise demolished, the replacement improvements will be limited to a maximum square footage of 38,000 square feet.</p>
<p>To avoid this outcome, parties will sometimes negotiate an “air rights transfer” that raises the elevation of the delimiting horizontal plane and includes an express covenant running with the land that reserves potential floor area to the transferring parcel (in this case, the Entertainment Parcel).</p>
<p>Under Scenario No. 2, the sale of “air rights” is more akin to the sale of “development rights”, but the legal principle is substantially the same as in Scenario No. 1. In each case, a property owner is selling the right to develop “the sky above” while retaining the ground level development parcel.</p>
<p>* * *</p>
<p>“Air rights” are valuable property rights that can be sold, purchased and transferred. Under the right circumstances, “air rights” may represent a substantial untapped resource with great value to those who recognize their potential. Since the transfer of these property rights may not directly impair the owner’s intended use of the surface level property, they are sometimes described as a way to generate “<em>money from thin air</em>“.</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>
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<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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<post-id xmlns="com-wordpress:feed-additions:1">1306</post-id> </item>
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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>
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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>
<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[keys to closing]]></category>
<category><![CDATA[property]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[site entitlement]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<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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<title>Illinois Commercial Condominiums – The Inactive Association Challenge</title>
<link>http://harp-onthis.com/illinois-commercial-condominiums-the-inactive-association-challenge/</link>
<comments>http://harp-onthis.com/illinois-commercial-condominiums-the-inactive-association-challenge/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 10 Aug 2015 15:30:41 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Commercial Condominiums]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial condominium associations]]></category>
<category><![CDATA[commercial condominiums]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[Illinois condos]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1197</guid>
<description><![CDATA[RESALE DISCLOSURE CHALLENGES – When the Commercial Condominium Association is “Inactive” Remarkably, perhaps as an aftermath of the Great Recession during which resales of commercial condominiums were infrequent, it is not rare to find that the owners association for a […]]]></description>
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<h2 class="wp-block-heading"><strong><span style="color: #21b6db;">RESALE DISCLOSURE CHALLENGES – When the Commercial Condominium Association is “Inactive”</span></strong></h2>
<ul class="wp-block-list">
<li>Section 18.3 of the Illinois Condominium Property Act provides that a unit owners’ association will be responsible for the overall administration of the property through its duly elected board of managers. 765 ILCS 605/18.3.</li>
<li>Section 19 of the Illinois Condominium Property Act sets forth a specific set of records that the board of managers of every association is required to maintain. 765 ILCS 605/19.</li>
<li>Section 22.1 of the Illinois Condominium Property Act provides that “in the event of any resale of a condominium unit by a unit owner other than the developer such owner shall obtain from the board of managers and shall make available for inspection to the prospective purchaser, upon demand . . .” a fairly comprehensive list of condominium instruments, and other documents and information, concerning the makeup and financial condition of the owners association, insurance coverage, litigation, reserves, assessments, and the like. 765 ILCS 605/22.1.</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>Remarkably, perhaps as an aftermath of the <em>Great Recession</em> during which resales of commercial condominiums were infrequent, it is not rare to find that the owners association for a commercial condominium has become inactive or only slightly active. Record keeping and budgeting may have become ‘streamlined”, addressing little more than collecting minimal assessments to pay insurance premiums on common elements. The owner’s association may have no formal budget, no capital reserves, extreme deferred maintenance, scant, if any, record of meetings of the board of managers, and no centralized or organized record keeping system beyond a box in a filing cabinet in the back-office of one of the unit owners.</p>
<p>Because of the infrequency of unit transfers in recent years, and the possible inexperience of a record-keeper who may have gotten the record-keeping job by default – when the last remaining board member left following foreclosure of his or her unit during the <em>Great Recession</em> – obtaining and providing the resale disclosure documents and information required by §22.1 can be a challenge.</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="1825" data-permalink="http://harp-onthis.com/illinois-commercial-condominiums-the-inactive-association-challenge/realestateagentandhousemodel/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.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) 2017 bannosuke\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Real,Estate,Agent,And,House,Model","orientation":"0"}" data-image-title="Real,Estate,Agent,And,House,Model" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.jpg?fit=300%2C199" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.jpg?fit=1000%2C662" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.jpg?resize=400%2C264" alt="real estate agent and house model" class="wp-image-1825" width="400" height="264" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.jpg?resize=300%2C199 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-and-house-model.jpg?resize=768%2C508 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>This challenge presents practical problems for the unit seller, unit buyer and the unit buyer’s proposed mortgagee when attempting to resell a commercial condominium unit. Not the least of these problems is delay and frustration in moving toward closing – which may ultimately sour a prospective buyer and its lender, and lead the buyer to back away from acquiring the unit at all.</p>
<p>Deferred maintenance of common elements affecting any unit in the condominium association could have an adverse financial impact on all unit owners. For example, if a commercial or industrial condominium association is comprised of multiple commercial/industrial buildings, a required roof replacement, foundation repair, or other structural repair for any of the buildings, or a recognized environmental condition in the common areas, could be expensive, with the cost shared among all unit owners. Accordingly, when investigating the condition of a commercial/industrial condominium unit being considered for acquisition, due diligence may require having all common elements in the association inspected, rather than merely looking at the unit being considered for acquisition. This may be more expensive and may take more time than might ordinarily be expected when purchasing a stand-alone building that is not a condominium unit.</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p><strong>PRACTICE TIP</strong></p>
<p>Consider when drafting a purchase agreement under these circumstances, who should bear the cost of inspecting all common elements in the association? Ordinarily the cost of “due diligence” is a buyer’s expense. But if extraordinary inspections of association common elements beyond the specific unit being acquired is required in the exercise of due diligence because the selling unit owner did not demand that the owners’ association be operated by a board of managers in compliance with the Illinois Condominium Property Act, should the buyer bear this extraordinary expense, or should the seller?</p>
</blockquote>
<p>There is no easy solution for this challenge, especially for a buyer planning to purchase a unit in one of these inactive associations. The best advice may be to become proactive – whether as an existing unit owner or upon becoming a new unit owner, to reactivate and invigorate the owners’ association and its board of managers, and to take steps to run the owners association in a businesslike manner, in compliance with the Illinois Condominium Property Act.</p>
<p>Generally speaking, owners of commercial condominiums are business people. They should demand that the association be run like they would run any business or investment property they invest in, if they expect to be successful.</p>
<p>If you have a viable solution to this challenge, please comment with your insights and practical suggestions.</p>
<p>Thank you in advance for participating in this discussion.</p>
<p>Kymn</p>
]]></content:encoded>
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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-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>
<category><![CDATA[Commercial Real Estate]]></category>
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<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>
<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>Recommendation: Exercise Due Diligence.</p>
<p>We are here to help.</p>
]]></content:encoded>
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<slash:comments>7</slash:comments>
<post-id xmlns="com-wordpress:feed-additions:1">1095</post-id> </item>
<item>
<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>
<guid isPermaLink="false">http://harp-onthis.com/?p=1052</guid>
<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>
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<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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<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>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<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>
</blockquote>
<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>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<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>
</blockquote>
<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>
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<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>
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<title>Illinois LLCs – The Asset Protection Advantage</title>
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<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Wed, 25 Feb 2015 21:29:21 +0000</pubDate>
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<description><![CDATA[Illinois LLCs – The Asset Protection Advantage A Technical Analysis Among sophisticated investors and other high-asset/high-net worth individuals and businesses, the topic of “asset protection” is bound to arise. As many became painfully aware during the recent Great Recession, bad […]]]></description>
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<h1 class="wp-block-heading">Illinois LLCs – The Asset Protection Advantage</h1>
<h2 class="wp-block-heading">A Technical Analysis</h2>
<p>Among sophisticated investors and other high-asset/high-net worth individuals and businesses, the topic of “<em>asset protection</em>” is bound to arise. As many became painfully aware during the recent <em>Great Recession</em>, bad things can happen to good people. In my article <a title="Asset Protection – Lessons Learned" href="http://harp-onthis.com/asset-protection-lessons-learned/" target="_blank" rel="noopener"><em>Asset Protection – Lessons Learned</em></a>, I discussed how properly structuring one’s holdings could have prevented, or at least mitigated, much of the financial devastation and anguish experienced by business owners, investors, real estate developers, doctors and others caught off-guard by the drastic economic collapse of 2007-2010.</p>
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<p>Often, there is confusion about what the term <em>asset protection</em> really means. Some imagine a shadowy network of off-shore trusts and secret bank accounts in foreign lands set up by unscrupulous characters to cheat innocent creditors. This is simply not true. In this article I will not debate the claimed pros and cons of secret bank accounts and so-called <em>off-shore asset protection trusts</em>. I will say, however, that under most circumstances, they don’t work for U.S. citizens residing in the U.S.A.</p>
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<p>Legitimate asset protection is nothing more or less than properly ordering one’s business and financial affairs in a way that does not unnecessarily expose all assets to claims of creditors.</p>
<p>The right of persons and businesses to limit their liability and exposure of their assets to claims of creditors is the well settled in the U.S.A. The United States of America, and each individual state, has a plethora of laws authorizing and recognizing the legitimacy of corporations and other limited liability entities as a means by which an investor can segregate assets and limit exposure to liability.</p>
<p>No person has a legal or moral obligation to structure his or her affairs in a way that makes it easy for a creditor of one business or professional enterprise to attach assets of the investor not committed to that enterprise. This protection may be impinged if the person or business engages in conduct tantamount to fraud, but actions explicitly authorized by applicable statute can hardly be characterized as being fraudulent. Fraud is an intentional tort requiring, among other elements, intentional breach of a duty owed to the person claimed to be harmed. If a statute expressly authorizes conduct, it implicitly, if not explicitly, negates any duty to act in a manner contrary to that authorized by the statute.</p>
<p>This article presents a technical analysis of certain asset protection attributes of an Illinois limited liability company expressly authorized by the Illinois Limited Liability Company Act, 805 ILCS 180/1-1 <em>et seq</em> (the “Illinois LLC Act”). The remarkably robust asset protection value of an Illinois limited liability company is measured by two key attributes:</p>
<p>1. The ability, expressly authorized by the Illinois LLC Act, to include in an LLC operating agreement provisions that protect the limited liability company and its business and assets from claims owed to others by members of the LLC – an attribute that creates a huge advantage vs. a corporation, as discussed in Part I, below; and</p>
<p>2. Enhanced protection of Members and Managers from liability for debts, contracts and torts incurred by the LLC, or resulting from acts or omissions of a Member or Manager while acting on behalf of the LLC, to an extent measurably greater than the protection afforded officers, directors and shareholders of a corporation.</p>
<p>Although one might reasonably expect that the order in which these key attributes are discussed would be reversed, the Part I discussion precedes the Part II discussion because the matters to be discussed in Part I are best considered at the outset, when the operating agreement is being drafted; while the matters discussed in Part II will most directly apply later, once a judgment creditor is seeking to enforce its judgment.</p>
<h3 class="wp-block-heading"><span style="text-decoration: underline;">PART I</span>: Key Statutory Provisions to Consider When Drafting the Operating Agreement</h3>
<span id="more-1039"></span>
<p>A limited liability company is typically governed by two main sources of governing authority. First and foremost, the enabling statute which authorizes the creation of a limited liability company and establishes its legal characteristics. Second, the organizational documents, including, in Illinois, the Articles of Organization, and an internal document governing the limited liability company’s ownership and management, known as an “operating agreement”.</p>
<p>To gain the full asset protection value afforded to an Illinois limited liability company, it is necessary to pay close attention to the powers expressly authorized by the Illinois LLC Act, and to strategically draft the operating agreement in a manner that utilizes those asset protection benefits expressly permitted by the Illinois LLC Act.</p>
<h4 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="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" /></a></h4>
<h4 class="wp-block-heading"> </h4>
<h4 class="wp-block-heading"> </h4>
<h4 class="wp-block-heading">A. Key Sections to Consider.</h4>
<p>Seven sections of the Illinois LLC Act are of particular interest in terms of asset protection when drafting the operating agreement. A brief summary of these sections as they pertain to this discussion is as follows:</p>
<p><strong>805 ILCS 180/15-15</strong>. The factors a manager may take into consideration in discharging its duties as manager of the LLC are set forth in this section.</p>
<p><strong>805 ILCS 180/30-1</strong>. A member of an LLC is not a co-owner of the LLC’s property and has no transferable interest in the LLC’s property. The economic interest a member owns is called a “distributional interest,” which entitles the holder thereof to receive its share of any distributions made by the LLC.</p>
<p><strong>805 ILCS 180/30-5</strong>. A transfer of a distributional interest does not entitle the holder thereof to become or exercise any rights of a member. A transfer entitles the transferee to receive, to the extent transferred, only the distributions to which the transferor would be entitled.</p>
<p><strong>805 ILCS 180/30-10</strong>. A transferee may become a member only as permitted in accordance with the terms of the LLC operating agreement. A transferee who does not become a member is not entitled to participate in the management or conduct of the LLC’s business, and may not require access to information concerning LLC transactions, or inspect or copy any LLC records.</p>
<p><strong>805 ILCS 180/30-20</strong>. Sets forth the exclusive means by which a judgment creditor of a member or transferee may satisfy a judgment out of the judgment debtor’s distributional interest in an LLC.</p>
<p><strong>805 ILCS 180/35-1</strong>. On application of a transferee, asserting equitable grounds for dissolution, an LLC may be dissolved only upon a judicial determination that it is equitable to wind up the LLC’s business.</p>
<p><strong>805 ILCS 180/35-3</strong>. An operating agreement or the articles of organization may provide a means by which a new member can spring into existence, effective as of the date the last remaining member of the LLC becomes dissociated.</p>
<h4 class="wp-block-heading">B. The Asset Protection Advantage of Illinois LLCs vs. Corporations, Generally:</h4>
<p>As a general proposition, a judgment creditor with a judgment against a corporate shareholder can attach that shareholder’s shares to satisfy the judgment. After attachment, the judgment creditor becomes the owner of the shares, with the right to vote those shares (assuming they are voting shares) on matters calling for shareholder action, including election of the board of directors, sale of assets, etc. Some protection against this outcome can be gained by means of a shareholders’ agreement that restricts transferability of shares. If there is a single shareholder, however, or if a judgment is entered against all of the shareholders, the protection afforded by a shareholder agreement may be unavailable.</p>
<p>Under the Illinois LLC Act, the rights and remedies of a judgment creditor are substantially limited.</p>
<p>Section 30-20 of the Illinois LLC Act sets forth the exclusive remedy by which a judgment creditor of an LLC member or a member’s transferee may satisfy a judgment vis-à-vis the judgment debtor’s distributional interest in an LLC. The Illinois appellate court has confirmed the enforcement regime provided in §30-20. <em>Bank of America, N.A. v. Freed</em>, 2012 IL App (1st) 110749, ¶¶37 – 42, 983 N.E.2d 509.</p>
<p>Pursuant to §30-20 of the Illinois LLC Act:</p>
<p>A court may impose a charging order on the distributional interest of the judgment debtor. 805 ILCS 180/30-20(a).</p>
<p>A charging order creates a lien on the judgment debtor’s distributional interest. 805 ILCS 180/30-20(b).</p>
<p>A court may order foreclosure of the lien at any time, but the purchaser at the foreclosure sale has only the rights of a transferee. Id.</p>
<p>Section 30-10 of the Illinois LLC Act sets forth the scope of rights of a transferee. Unless provided otherwise in the operating agreement, the transferee does not become a member of the LLC and therefore has no right to participate in management or to conduct the LLC’s business, no right to require access to information concerning LLC transactions, and no right to inspect or copy LLC records. 805 ILCS 180/30-10(d).</p>
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<h5 class="wp-block-heading">PRACTICE NOTE:</h5>
<p>Relative to a manager-managed LLC, case law confirms that the right to manage the LLC is not a property interest that can be transferred. <em>Grochocinski v. Campbell (In re Campbell)</em>, 475 B.R. 622 (Bankr. N.D.Ill. 2012). In a gratuitous comment (see 475 B.R. at 631 n.6), however, the Campbell court suggested that the result would be different if the LLC were to be member-managed. The footnote is dicta — and, while arguably a correct interpretation of Section 541(c)-1 of the Bankruptcy Code, is likely incorrect outside a bankruptcy setting, based on the express language of the Illinois LLC Act. Prudence suggests, however, that for asset protection purposes, a manager-managed LLC is preferable.</p>
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<h4 class="wp-block-heading">C. The Charging Order</h4>
<p>In a typical case, the operating agreement may very likely grant the manager of a manager-managed limited liability company the authority and discretion to determine if and when distributions will be made to interest holders. If the judgment creditor is holding only a charging order lien against the distributional interest of a member, the judgment creditor will receive nothing if no distributions are made.</p>
<p>At first glance it may appear that foreclosing on a distributional interest and acquiring the rights of the judgment debtor in the distributional interest is the logical next step if the judgment is not being satisfied pursuant to a charging order entered in accordance with 805 ILCS 180/30-20(a). It should be noted, however, that foreclosing on the charging order lien and becoming the actual owner of the distributional interest is not without risk to the judgment creditor.</p>
<p>LLCs are, with rare exceptions, taxed as partnerships, with all profits and losses passed through to the owners of distributional interests (whether they own that interest as a member or as merely a transferee). As many partners in partnerships, including many partners in law firm partnerships, are painfully aware, this attribute of partnership taxation can result in dreaded “phantom income”; that is, partnership-level income that is taxable to the partner even though no cash is distributed to the partner. This same rule of pass-through tax liability applies to virtually all LLCs. (The exception being the rare case in which an LLC makes an IRS election to be taxed as a “C” corporation.)</p>
<p>As long as a judgment creditor has only a charging order lien imposed under §30-20, the judgment creditor is merely a lienholder, not an owner of the distributional interest. Accordingly, the tax consequences of phantom income inure to the judgment debtor, who remains the owner of the distributional interest. If, however, a judgment creditor forecloses on the lien created by the charging order, as permitted under §30-20(b), the purchaser at the foreclosure sale becomes the owner of the distributional interest, with all the attendant tax consequences that flow with that ownership. If taxable profits are allocated to the distributional interest holder, but no cash distribution is actually made, the judgment creditor, as owner of the foreclosed-on distributional interest, is liable to pay taxes on the allocated profit. As a consequence, the judgment creditor may conceivably find itself in a worse financial circumstance than existed before foreclosure of its charging order lien.</p>
<h4 class="wp-block-heading">D. Authority of Manager To Withhold Distributions</h4>
<p>If the manager of a manager-managed limited liability company elects to not distribute profits, the owner of the distributional interest is exposed to the risk of incurring tax liabilities as a consequence of phantom income. For this reason, some operating agreements require distribution of available cash flow in amounts necessary cover the potential tax liability of the LLC’s members and distributional interest holders. Experience suggests this may be the exception rather than the rule.</p>
<p>Some may question whether a manager has the right, in the faithful discharge of the manager’s fiduciary duties, to withhold distributions to interest holders if cash is available. To find support, they may point to §15-3(g) of the Illinois LLC Act, through incorporation of §15-3(d), which provides that in the exercise of its duty of care to the LLC and its members, an LLC manager must exercise any rights arising under the Illinois LLC Act or under the operating agreement consistent with the obligation of good faith and fair dealing. 805 ILCS 180/15-3.</p>
<p>As negotiating leverage, they may also note that §35-1(5) of the Illinois LLC Act provides that:</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p>“[o]n application by a transferee of a member’s interest, a judicial determination [may be made] that it is equitable to wind up the company’s business.”</p>
</blockquote>
<p>. . . arguing that the claimed breach of the manager’s fiduciary duty to distribute available income creates a circumstance that would make it equitable to wind up the company’s business.</p>
<p>Consider, however, §15-15, which provides:</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p>“In discharging the duties of their respective positions, members and individual managers may, in considering the best long term and short term interests of the limited liability company, consider the effects of any action (including without limitation, action that may involve or relate to a change or potential change in control of the limited liability company) upon employees, suppliers, and customers of the limited liability company or its subsidiaries, communities in which offices or other establishments of the limited liability company or its subsidiaries are located, and all other pertinent factors.”</p>
</blockquote>
<p>If an LLC manager can make a plausible case that it is in the best long-term or short-term interests of the LLC to build cash reserves for reinvestment in the company to grow its business or to fund capital improvements, such case may likely serve as reasonable justification for a manager’s decision to withhold distributions of cash flow to interest holders in the faithful discharge of its duties — notwithstanding that interest holders may incur phantom income tax liability.</p>
<p>If the case can be made that the manager is acting within the scope of its authority under the operating agreement and discharging its duties in accordance with the statutory standard established by §15-15, a powerful argument would likely exist that it would be an abuse of the court’s discretion to determine that the manager’s exercise of such expressly granted authority creates an equitable ground to wind up the LLC’s business under §35-1(5).</p>
<hr class="wp-block-separator has-alpha-channel-opacity"/>
<h5 class="wp-block-heading">PRACTICE NOTE</h5>
<p>If an LLC member is subject to claims of creditors that may mature into a charging order, consider whether an LLC operating agreement that does not grant a manager full discretion to determine whether to make distributions may be amended to grant the manager full discretion.<em> Query:</em> Does such an amendment constitute a fraudulent transfer within the meaning of the Uniform Fraudulent Transfer Act (UFTA), 740 ILCS 160/1, <em>et seq.</em>? Can a fraudulent transfer ever occur when there has been no transfer or encumbrance of an asset? If the ability to be a manager is not a property interest in a manager-managed LLC (see <em>Grochocinski v. Campbell (In re Campbell)</em>, 475 B.R. 622 (Bankr. N.D.Ill. 2012)), can amending the scope of the manager’s authority constitute the transfer or encumbrance of an asset or property interest within the meaning of the UFTA?</p>
<hr class="wp-block-separator has-alpha-channel-opacity"/>
<h4 class="wp-block-heading">E. The Springing Member</h4>
<p>The foregoing argument notwithstanding, if the judgment debtor were to be the sole member of a manager-managed limited liability company, with the result that upon foreclosure of the charging lien under 805 ILCS 180/30-20 the judgment creditor became the sole economic interest holder as owner of 100 percent of the distributional interest, a compelling case might be made that equity requires the business of the LLC to be wound up if requested by such 100% owner.</p>
<p>But what if, after foreclosure of the charging order on 100 percent of the distributional interest of the judgment debtor, the judgment creditor was, in fact, still not the owner of 100 percent of distributional interests in the LLC? What if, as of the time the foreclosure and transfer occurred, there was another distributional interest holder — which was, in fact, the sole member? Might that make a difference in the court’s determination that it is equitable to wind up the LLC’s business?</p>
<p>Based on the hypothetical facts we have been examining (i.e., foreclosure of 100 percent of the distributional interest held by all LLC members), how could this factual twist ever come into play?</p>
<p><em>Here’s how:</em></p>
<p>Consider §35-3(c)(2) of the Illinois LLC Act, which permits the articles of organization or operating agreement to provide for a new member to, essentially, spring into existence effective as of the dissociation of the last remaining member. (Transfer of all of a member’s distributional interest is an act of dissociation. See 805 ILCS 180/35-45(3).)</p>
<p>Suppose the operating agreement provides that within six months after dissociation of the last remaining member, the manager has the right to cause the LLC to issue, say, a one-percent distributional interest in the LLC to the manager, upon contribution by the manager to the LLC of an amount equal to one percent of the aggregate balance of all capital accounts, and that upon such occurrence the manager shall be admitted as a member? Upon being admitted as a member owning a one-percent distributional interest, the manager would be the sole member, with the ability to give unanimous approval to all actions requiring approval of the members. Might that make a compelling case that the LLC remains as a fully functioning entity capable of carrying out its business purpose? Consider, particularly, if the LLC operates a business as a going concern, with employees, vendors, and community stakeholders who benefit from the LLC’s continued existence and operation. Is it likely a court will find equitable grounds to order that the business of the LLC be wound up?</p>
<p>Obviously, each case must be judged on its own merits. But once again, from the standpoint of negotiating on behalf of a judgment debtor, plausible arguments well-grounded in fact and warranted by existing law that can create doubt in the mind of a judgment creditor as to the likely success of its enforcement efforts are valuable tools in reaching a favorable settlement.</p>
<h4 class="wp-block-heading"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/IMG_01561.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="84" data-permalink="http://harp-onthis.com/illinois-llcs-the-asset-protection-advantage/img_0156-2/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/IMG_01561.jpg?fit=537%2C720" data-orig-size="537,720" data-comments-opened="1" data-image-meta="{"aperture":"2.8","credit":"","camera":"iPhone 4","caption":"","created_timestamp":"1310642963","copyright":"","focal_length":"3.85","iso":"80","shutter_speed":"0.00149925037481","title":""}" data-image-title="IMG_0156" data-image-description="<p>RKH iPhone photo – Chicago – from USFDLG offices</p>
" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/IMG_01561.jpg?fit=223%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/IMG_01561.jpg?fit=537%2C720" class=" size-medium wp-image-84 alignright" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/IMG_01561.jpg?resize=223%2C300" alt="IMG_0156" width="223" height="300" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/IMG_01561.jpg?resize=223%2C300 223w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/IMG_01561.jpg?w=537 537w" sizes="auto, (max-width: 223px) 100vw, 223px" /></a>F. How Do These LLC Provisions Aid a Commercial Real Estate Borrower?</h4>
<p>Narrowly speaking, one might wonder how everything discussed above helps in the typical commercial loan scenario in which the limited liability company is the borrower, with direct liability, and the LLC members are guarantors, also with direct liability. If the LLC members have a single project with a single loan from a single lender, the point is well taken. The lender does not need to go through the members to get to the LLC’s income and assets. It can simply enforce its judgment against the LLC, while simultaneously, if it so chooses, also pursuing the guarantor members.</p>
<p>But what if the guarantor members are active real estate investors/developers (or other investors/professionals) who don’t have just one project (or business) through one LLC and one lender, but rather have two or more projects (or businesses) through two or more separate LLCs with loans from two or more separate lenders?</p>
<p><em>EXAMPLE</em>: Consider this fact scenario:</p>
<p>Project A is owned by LLC A and financed by Lender A for $5,000,000 (Loan A).</p>
<p>Project B is owned by LLC B and financed by Lender B for $8,000,000 (Loan B).</p>
<p>The members of LLC A are X and Y, who jointly and severally guaranty Loan A.</p>
<p>The members of LLC B are X and Z, who jointly and severally guaranty Loan B.</p>
<p>LLC A and LLC B are each manager-managed LLCs, in each case managed by XYZ Management LLC, which is owned by X, Y, and Z as equal members. XYZ Management LLC is not a member of either LLC A or LLC B. XYZ Management LLC is jointly managed by X, Y, and Z.</p>
<p>Project B is doing well and has equity of $7,000,000, with annual net cash flow after debt service of $650,000, with taxable profits after depreciation of $600,000.</p>
<p>Project A is in default and facing a $3,000,000 deficiency after sale of the collateral, resulting in a personal judgment in favor of Lender A against members X and Y on their personal guaranties.</p>
<p>Assume X and Y have no other attachable assets.</p>
<p>Applying the asset protection-friendly provision of the Illinois LLC Act, (coupled with a thoughtfully structured operating agreement) what may be the likely outcome of Lender A’s efforts to enforce its judgments?</p>
<p>Lender A obtains a $5,000,000 judgment against LLC A and pursues members X and Y on their personal guaranties. After disposing of the collateral owned by LLC A for $2,000,000, Lender A obtains a $3,000,000 joint and several judgment against members X and Y on their personal guaranties.</p>
<p>Through a citation to discover assets or otherwise, Lender A learns that X is a 50-percent member of LLC B, which has net equity of $7,000,000. Lender A also learns that X and Y are members of XYZ Management LLC, each owning 33.3 percent of that LLC.</p>
<p>Lender A wishes to satisfy its $3,000,000 judgment by attaching the 50-percent membership interest of X in LLC B.</p>
<p>Pursuant to §30-20 of the Illinois LLC Act, 805 ILCS 180/30-20, Lender A’s exclusive remedy relative to the LLC interest of member X is to obtain a charging order, which is a lien against distributions payable to X. With LLC B having net cash flow after debt service of $650,000 per year, the most Lender B expects to receive is $325,000 per year, based on the 50-percent membership interest of X.</p>
<p>In fact, XYZ Management LLC (the manager of LLC A) decides to reserve $650,000 per year for capital repairs and improvements and as a reserve against possible tenant vacancies and other contingencies. XYZ Management LLC elects not to make any distributions to members. As a consequence, pursuant to Lender A’s charging order, Lender A gets nothing, because X is not entitled to receive any distributions from LLC B on its distributional interest.</p>
<p>Lender A is unhappy. Lender A contemplates foreclosing its lien on the distributional interest of X pursuant to §30-20(b). If it does so, Lender A will become the owner of the 50-percent distributional interest of X in LLC B and will be subject to taxable phantom income of $300,000 per year (50 percent of the hypothetical $600,000 per year in taxable income) as the owner of a 50-percent distributional interest. Instead of being better off, Lender A may be worse off, having incurred a substantial income tax liability.</p>
<p>As an alternative, Lender A decides to try to force a liquidation of LLC B, so that it will receive 50 percent of the hypothetical $7,000,000 in equity in the project owned and operated by LLC B. To do this, Lender A decides to pursue the interests of X and Y in XYZ Management LLC. Since X and Y each owns 33.3 percent of XYZ Management LLC, Lender A assumes it can take control of XYZ Management LLC by obtaining a charging order on the interests of X and Y in XYZ Management LLC and then acquiring 66.6 percent via foreclosure of its charging order lien pursuant to §30-20(b).</p>
<p>Lender A contemplates that by acquiring the ownership interests of two out of three members of XYZ Management LLC, including the interests of two out three of its managers, Lender A will control XYZ Management LLC and, through that control, will be the manager of LLC B and can direct a sale or liquidation of LLC B’s assets.</p>
<p>Unfortunately for Lender A, it discovers that by foreclosing on the interests of X and Y in XYZ Management LLC, Lender A acquires, pursuant to §30-20(b), only the interests of a transferee, with no right to vote as a member and no right to participate in management of XYZ Management LLC per §30-10(d). Therefore, Lender A still has no management authority with respect to LLC B.</p>
<p>Query: Based on the foregoing hypothetical facts and likely outcome of its enforcement efforts, might the lender be willing to consider settlement with X and Y for less than full payment?</p>
<h4 class="wp-block-heading">G. What Is the Defaulted Borrower’s Exit Strategy?</h4>
<p>Asset protection can be more an “art” than a science. There is no magic formula for success in protecting the assets and income of commercial real estate borrowers when a loan goes bad, but there are effective strategies that can help facilitate settlement upon favorable terms that may avoid catastrophic financial ruin.</p>
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<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_28551060.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="206" height="300" data-attachment-id="518" data-permalink="http://harp-onthis.com/the-little-known-two-year-rule-for-employment-restrictive-covenants-illinois/httpwww-dreamstime-comstock-photo-confused-business-man-thinking-wich-way-to-go-image28551060/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_28551060.jpg?fit=1437%2C2087" data-orig-size="1437,2087" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"(c) Feedough | Dreamstime.com","focal_length":"0","iso":"0","shutter_speed":"0","title":"http:\/\/www.dreamstime.com\/stock-photo-confused-business-man-thinking-wich-way-to-go-image28551060"}" data-image-title="http://www.dreamstime.com/stock-photo-confused-business-man-thinking-wich-way-to-go-image28551060" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_28551060.jpg?fit=206%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_28551060.jpg?fit=705%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_28551060.jpg?resize=206%2C300" alt="http://www.dreamstime.com/stock-photo-confused-business-man-thinking-wich-way-to-go-image28551060" class="wp-image-518" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_28551060.jpg?resize=206%2C300 206w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_28551060.jpg?resize=705%2C1024 705w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/06/dreamstimemedium_28551060.jpg?w=1437 1437w" sizes="auto, (max-width: 206px) 100vw, 206px" /></a></figure></div>
<p>A principal objective of asset protection — and even most defensive efforts on behalf of a commercial real estate borrower in the event of default on a commercial real estate loan — is typically to motivate the lender to settle on favorable terms. What terms a borrower or guarantor may consider favorable depends on the facts and circumstances of the particular case.</p>
<p>Often, the favorable outcome being sought is a release of the loan guarantors from personal liability on their loan guaranties. This may require the payment of some money by the guarantors, but ideally substantially less that the full exposure on the personal guaranty.</p>
<p>Generally, the lender is seeking to maximize its recovery. If it can recover the entire indebtedness and costs of collection, the lender will seek full recovery. If full recovery becomes doubtful, however, most lenders will settle for an approximation of what the lender reasonably expects it will net through continued forced collection efforts. The lender’s objective of maximizing recovery has been expressly incorporated into financial institution supervisory guidance through the joint financial regulators’ <em>Policy Statement on Prudent Commercial Real Estate Loan Workouts</em>, <a href="http://www.fdic.gov/news/news/financial/2009/fil09061a1.pdf" target="_blank" rel="noopener">www.fdic.gov/news/news/financial/2009/fil09061a1.pdf</a>.</p>
<p>Weighing the costs of recovery against the amount of recovery likely to be obtained is a relevant factor for lenders to consider in maximizing their recovery. Money has “time value” as well. The more quickly money is recovered, the more value it has. The fact that a judgment may be accruing interest at nine percent per annum, or that the borrower and its guarantors are liable to pay costs of collection, including reasonable attorneys’ fees, becomes fairly meaningless if the borrower and guarantors have no assets or income from which the lender can readily recover its claim. If the borrower and/or guarantors are properly positioned to borrow funds from friends or family to pay even a modest settlement that is equivalent to, or slightly exceeds, what the lender can readily recover through forced collection efforts, settlement is a plausible outcome.</p>
<p>The more difficult and doubtful collection efforts become, the more likely one may be to obtain favorable settlement terms.</p>
<h4 class="wp-block-heading">H. Timing Consideration for Asset Protection</h4>
<p>Asset protection strategies are most effective when planned far in advance. Transfers of assets into a limited liability company or other asset protection-friendly vehicle can come too late if not completed well in advance of financial difficulties. The statute of limitations for a transfer constituting a fraudulent transfer is four years. 740 ILCS 160/10. Fortunately for most commercial real estate borrowers, Illinois business owners and Illinois licensed professionals, no transfer may be necessary for them to avail themselves of the asset protection advantages of an Illinois LLC since most commercial real estate projects financed in the past several years, and most Illinois based businesses, and many Illinois licensed professions, have been owned from the outset in an Illinois LLC. Creative amendment to an existing operating agreement may be sufficient to increase the level of asset protection.</p>
<p>Planning ahead is the ideal solution — but sometimes you just have to take what the statute gives you. For Illinois LLCs, the Illinois LLC Act actually gives quite a lot.</p>
<h3 class="wp-block-heading"><span style="text-decoration: underline;">PART II</span>: Immunity from Liability of Members and Managers</h3>
<p>In Part I of this article, we discussed the key sections of the Illinois LLC Act which protect the LLC, its business, and other members, if any, by limiting recovery <em>vis-à-vis</em> the LLC of a judgment entered against an LLC member.</p>
<p>Of equal or greater value is 805 ILCS 180/10-10, as interpreted and sustained in Dass v. Yale, 2013 IL App (1st) 122520; 3 N.E.3d 858.</p>
<p>A. <strong>805 ILCS 180/10-10</strong> provides, as follows:</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p>“(a) Except as otherwise provided in subsection (d) of this Section, the debts, obligations and liabilities of a limited liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the company. A member or manager is not personally liable for a debt, obligation, or liability of the company solely by reason of being or acting as a member or manager.</p>
<p>(b) (Blank)</p>
<p>(c) The failure of a limited liability company to observe the usual company formalities or requirements relating to the exercise of company powers or management of its business is not a ground for imposing personal liability on the members of managers for liabilities of the company.</p>
<p>(d) All or specified members of a limited liability company are liable in their capacity as members for all or specified debts, obligations, or liabilities of the company if:</p>
<p>(1) a provision to that effect is contained in the articles of organization; and</p>
<p>(2) a member so liable has consented in writing to the adoption of the provision or to be bound by the provisions.”</p>
</blockquote>
<h4 class="wp-block-heading"><strong>B. <em>Dass v. Yale</em></strong>, 2013 IL App (1st) 122520; 3 N.E.3d 858, cert. denied.</h4>
<p>In <em>Dass v. Yale</em>, the plaintiff claimed that Yale, the sole managing member of Wolcott LLC, an Illinois limited liability company, defrauded the plaintiff in connection with the sale of a condominium unit by making false representations plaintiff claimed constituted, <em>inter alia</em>, common law fraud. <em>See id</em>., ¶ 2.</p>
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<p>Yale moved to dismiss the claims against him, asserting he was insulated from liability under Section 10-10 of the Illinois LLC Act. The plaintiff objected, claiming the legislature never intended Section 10-10 of the Illinois LLC Act to shield limited liability company members or managers who commit fraud. The trial court disagreed, and sided with defendant Yale, finding that members and managers are immune from liability under Section 10-10 of the Illinois LLC Act and granted Yale’s motion to dismiss. <em>Id.</em> ¶ 3. The plaintiff appealed.</p>
<p>The Appellate Court noted that plaintiff Dass was not asserting a right to pierce the LLC entity veil, using any recognized piercing test (which will be discussed in Part II – C, below), but rather was asserting liability of Yale based, essentially, upon the general notion (as incorporated in the legislative comments to Section 303 of the Uniform Limited Liability Company Act (the “Uniform Act”)) that an agent, even while acting on behalf of a principal, is jointly and severally liable for tortious conduct committed by the agent. Id. ¶¶ 36, 40. Arguing that Section 10-10 of the Illinois LLC Act is substantively similar to Section 303 of the Uniform Act, plaintiff Dass asserted that Yale should be liable for the claimed fraud (or, at least, should have to answer for the claim, rather than be dismissed pursuant to Yale’s motion to dismiss).</p>
<p>The Appellate Court also noted that Section 303 of the Uniform Act and the comments accompanying Section 303 may normally be persuasive authority in interpreting Section 10-10 of the Illinois LLC Act due to similar language used in each, even though neither Section 303 nor the comments are formally a part of the Illinois LLC Act. Id., ¶¶ 40-41.Taking into consideration of the history of the Illinois LLC Act and other cases interpreting the history, however, the Appellate Court determined that the trial court was correct in finding that Yale is shielded from liability. The court stated:</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p>“Indeed, examining the history of the LLC Act itself demonstrates that the trial court was correct in interpreting section 10-10 to shield Yale from liability. The current language of section 10-10 has been in effect since January 1, 1998. See Pub. Act. 90-0424 (eff. Jan. 1, 1998). Prior to that, section 10-10 read:</p>
<p>(a) A member of a limited liability company shall be personally liable for any act, debt, obligation or liability of the limited liability company or another member or manager to the extent that a shareholder of an Illinois business corporation is liable in an analogous circumstance under Illinois law.</p>
<p>(b) A manager of a limited liability company shall be personally liable for any act, debt, obligation or liability of the limited liability company or another member or manager to the extent that a shareholder of an Illinois business corporation is liable in an analogous circumstance under Illinois law. 805 ILCS 180/10-10 (West 1996).</p>
<p>Generally, a change to the unambiguous language of a statute creates a rebuttable presumption that the amendment was intended to change the law. Here, the language of the LLC Act was changed by removing language explicitly providing for personal liability. As we noted in <em>Puleo,</em> “[a]s we have not found any legislative commentary regarding that amendment, we presume that by removing the noted statutory language, the legislature meant to shield a member or manager of an LLC from personal liability.” <em>Dass</em>, 2013 IL App (1st) 122520, ¶ 41 (internal citations omitted).”</p>
</blockquote>
<p>The court also noted that “the express language of section 10-10 (currently) provides that ‘the debts, obligations, and liabilities of a limited liability company, <em>whether arising in contract, tort, or otherwise</em>, are solely the liabilities of the company.’ We see no reason why the reasoning of <em>Puleo</em> and <em>Carollo</em>, which focused on the language of the LLC Act and its amendment, would not apply to a liability arising in tort, as in the case at bar, when such a scenario is expressly contemplated by the language of section 10-10. Accordingly, we affirm the trial court’s dismissal of plaintiffs’ complaint.” <em>Id</em>. ¶ 44 (emphasis in original) (internal citations omitted).</p>
<p>The plaintiff petitioned the Illinois Supreme Court for leave to appeal, which was denied on March 26, 2014. 2014 WL 1385161, 5 N.E.3d 1123 (Ill. Mar. 26, 2014). Thus, the decision stands as the binding law of Illinois.</p>
<h4 class="wp-block-heading">C. Piercing the LLC Entity Veil</h4>
<p>In a footnote, the Appellate Court in <em>Dass v. Yale</em> stated as follows: “We note that <em>Puleo</em> was somewhat limited in <em>Westmeyer v. Flynn</em>, 382 Ill. App. 3d 952, 960, 321 Ill. Dec. 406, 889 N.E.2d 671 (2008), where we found that section 10-10 did not bar actions involving piercing the</p>
<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>
<p>corporate veil. However, in the case at bar, there has been no claim that the corporate veil should be pierced.” <em>Dass</em>, 2013 IL App (1st) 122520, at n. 7.</p>
<p>With that footnote, it is at least appropriate to consider the circumstances under which the entity veil of an Illinois limited liability company might properly be pierced.</p>
<p>With one significant exception, Illinois limited liability companies are subject to the same piercing rules as Illinois corporations. <em>Buckley v. Abuzir</em>, 2014 IL App (1st) 130469; 8 N.E.3d 1166; <em>Denmar Builders, Inc. v. Suhadolnik (In re Suhadolnik)</em>, No. 08-A-7116, 2009 WL 2591338, at *4 (Bankr. C.D. Ill. Aug. 20, 2009).</p>
<p>Illinois courts have developed fairly uniform rules on the subject of veil-piercing. “Courts may pierce the corporate veil, where to corporation is so organized and controlled by another entity that maintaining the fiction of separate entities would sanction fraud or promote injustice. <em>Buckley</em>, 2014 IL App (1st) 130469, ¶ 12. A party seeking to pierce the corporate veil must make a substantial showing that one corporation is a dummy or a sham for another.” <em>Id.; In re Estate of Wallen</em>, 262 Ill. App. 3d 61, 68 (2d Dist. 1994).</p>
<p>Illinois courts will pierce the corporate veil when the following two-part test is satisfied: “(1) where there is such a unity of interest and ownership that the separate personalities of the corporation and the parties who compose it no longer exist; and (2) circumstances are such that adherence to the fiction of a separate corporation would promote injustice or inequitable circumstances. <em>Tower Investors LLC v. 111 East Chestnut Consultants, Inc</em>., 371 Ill. App. 3d 1019, 1033-34 (1st Dist. 2007).</p>
<p>The first part of the test generally refers to the failure of the corporation to observe corporate formalities. The second part of the test looks to whether circumstances exist that would effectively sanction fraud if the veil is not pierced.</p>
<p>The first part of the two-part test for veil piercing does not apply to limited liability companies under the Illinois LLC Act, by reason of the express language of 805 ILCS 180/10-10(c), which provides “The failure of a limited liability company to observe the usual company formalities or requirements relating to the exercise of company powers or management of its business is not a ground for imposing personal liability on the members or managers for liabilities of the company.” Id.</p>
<p>Note, however, that “while the Act provides specifically that the failure to observe corporate formalities is not a ground for imposing personal liability on the members of an LLC, it does not bar other bases for corporate veil piercing, such as alter ego, fraud or undercapitalization.” <em>Westmeyer v. Flynn</em>, 382 Ill. App. 3d 952, 960 (1st Dist. 2008); <em>Denmar Builders, Inc.</em>, 2009 WL 2591338, at *4; I<em>n re Polo Builders, Inc.</em>, 388 B.R. 338, 384 (Bankr. N.D. Ill. 2008).</p>
<p>An in-depth discussion of the overall topic of LLC veil piercing is beyond the scope of this article. Generally speaking, however, it is not as simple as some attorneys seem to think. Under proper circumstances, however, piercing may be allowed.</p>
<p>Enlightening discussions of the topic of veil piercing can be found in cases such as: <em>Judson Atkinson Candies, Inc. v. Latini-Hohberger Dhimantec</em>, 529 F.3d 371 (7th Cir. 2008); <em>Buckley v. Abuzir,</em> 2014 IL App (1st) 130469; and <em>On Command Video v. Roti</em>, 705 F.3d 267 (7th Cir. 2013). As a general proposition, however, merely losing money, failing in business, or depleting available capital through the ordinary course of business operations will not be a sufficient basis to pierce the entity veil to get to the assets of LLC members or managers. A party seeking to pierce the entity veil must make a substantial showing that the entity is a sham or was used to intentionally mislead or defraud in circumstances that would promote injustice. Mere inability of an LLC to satisfy or pay its liabilities, without more, is not enough. See On Command Video, 705 F.3d at 272; <em>In re Estate of Wallen</em>, 262 Ill. App. 3d at 68; Buckley, 2014 IL App (1st) 130469; 8 N.E.3d 1166; and <em>Tower Investors LLC</em>, 371 Ill. App. 3d at 1033-34.</p>
<h5 class="wp-block-heading">*<em>Publishing Note</em>: Parts of this article first appeared in the Commercial Real Estate handbook published by the Illinois Institute for Continuing Legal Education as part of the author’s 2013 chapter supplement [Chapter 4.S.] to “<em>Commercial Real Estate Financing from the Borrower’s Perspective</em>”.</h5>
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<post-id xmlns="com-wordpress:feed-additions:1">1039</post-id> </item>
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<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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<post-id xmlns="com-wordpress:feed-additions:1">1024</post-id> </item>
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<title>LENDING BLIND – SIX YEARS AFTER LEHMAN’S COLLAPSE</title>
<link>http://harp-onthis.com/lending-blind-the-pitfall-of-commercial-real-estate-lending-without-full-knowledge/</link>
<comments>http://harp-onthis.com/lending-blind-the-pitfall-of-commercial-real-estate-lending-without-full-knowledge/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 15 Sep 2014 11:10:53 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[lending]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[bank]]></category>
<category><![CDATA[banks]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[lenders]]></category>
<category><![CDATA[loan documentation]]></category>
<category><![CDATA[loans]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=144</guid>
<description><![CDATA[Commercial Real Estate Lending:  What You Don’t Know Can Hurt You! If there is anything commercial real estate lenders have learned during the collapse of the commercial real estate market over the past five or so years, it would be the […]]]></description>
<content:encoded><![CDATA[
<h2 class="wp-block-heading">Commercial Real Estate Lending: What You Don’t Know Can Hurt You!</h2>
<p>If there is anything commercial real estate lenders have learned during the collapse of the commercial real estate market over the past five or so years, it would be the danger of “lending blind”. Commercial real estate lending without fully understanding the project is a prescription for disaster. An original version of this article was first published in 2005. It is eerie how prophetic the warning signs were. Surely lenders have learned. . . .</p>
<span id="more-144"></span>
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<p>What is “lending blind”? Lending blind is making commercial real estate loans without fully understanding the underlying project and the collateral risks it presents. Lending blind is closing one’s eyes to important legal, environmental and land use issues uniquely applicable to commercial real estate and ignoring available risk-shifting techniques in the hope or unfounded belief that if the issues are not carefully considered, maybe they won’t exist.</p>
<p>Make no mistake: Commercial real estate lending is not the same as residential real estate lending. [Little did we anticipate where the residential real estate market was headed when this comparison was made.] Many bankers and other lenders faced with customer resistance to higher loan costs may wish to close their eyes to this reality. Ignoring this reality, however, does not change it. Ignoring this reality may on the surface seem to cut costs, but it can endanger bank profits and jeopardize capital.</p>
<p>“Sound and safe lending practices” is not just a phrase used by banking regulators. It should be a way of doing business.</p>
<p>Failing to focus on genuine risks presented by commercial real estate lending is not a sound and safe lending practice.</p>
<div class="wp-block-image">
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<p>Believing a commercial real estate loan is properly documented through use of pre-packaged computer generated loan documents, without also requiring qualified, in-depth analysis of land use controls imposed by documents of record and zoning, knowledgeable examination of survey, lease subordination, insurance, access, borrower authority and other legal issues, and without fully understanding environmental risks presented by existing, former or contemplated tenants, occupiers, and adjacent land owners, is not following sound and safe lending practices.</p>
<p>Blindly following a loan document checklist and filling the loan file with documents and materials that “evidence” a well documented loan, without a genuine understanding of the limitations, pitfalls, and legal red flags the documents may raise, is not following sound and safe lending practices.</p>
<p>Using the ostrich approach to lending is a game of Russian Roulette. The result can be catastrophic to bank profits and capital if and when the loan goes bad.</p>
<p>Banks and other commercial lenders following these unsound and unsafe banking practices do not like this message. They often assert their loan processors are “good people” with excellent training and years of experience using their canned document software.</p>
<p>The fact that a lender’s in-house loan processors are “good people” is not in question. The fact that they are well-trained to input relevant data so a computer can generate a beautiful set of loan documents is not the issue.</p>
<p>The issue is what may lie beyond the documents.</p>
<p>A perfectly generated set of “standard loan documents” may be of little value if they fail to adequately address unique issues raised by the commercial real estate project serving as collateral. To be certain, each commercial real estate project is different. Unlike owner-occupied residential real estate, it cannot safely be “assumed” that commercial real estate collateral is legally suitable for, or can even legally be used for, its intended use.</p>
<p>A beautifully drafted Mortgage on commercial real estate is of little value if the project does not have a legal right to commercially reasonable access or parking. CASE IN POINT: How secure is a loan on an 800 person banquet facility in a mixed use center if the banquet facility has a legal right to park only 155 cars? CASE IN POINT: What is the collateral value of a hotel on a highly visible highway interchange, which has as its primary means of access only a license to use a private drive that can be closed at any time? [Is the appraiser legally responsible for discovering this fact when making the loan appraisal? What kind of access does the typical title insurance policy insure?]
<p>Obtaining a Lender’s Title Insurance Policy with specialized commercial endorsements is a useful method of shifting risks away from the lender, but the lender must understand how to interpret each endorsement to know what it insures. CASE IN POINT: While attending a loan closing as an “accommodation” for a lender making a large loan to one of its “best customers” to purchase a warehouse and manufacturing building, with instructions from the lender to simply “oversee execution of closing documents (the lender had prepared) and approve title”, it was discovered by lender’s counsel upon review of the lender’s required zoning endorsement that the borrower’s intended use of the facility was expressly prohibited by the applicable zoning ordinance. The ALTA 3.1 Zoning Endorsement to be attached to the loan policy disclosed that the borrower’s intended use was expressly excluded as a permitted use on the land. Neither the lender nor the borrower had read the endorsement or, if they had, they failed to understand its meaning. The transaction was aborted by the regretful but thankful borrower – who would have been unable to operate its business if the transaction had proceeded. Failure to recognize this restriction before funding would have almost certainly meant bankruptcy for one of the bank’s “best customers” and a huge non-performing loan for the lender.</p>
<p>Experience shows that lenders should not assume that borrowers and their counsel will always conduct an adequate due diligence investigation to ascertain all associated risks that may impact the project and important underlying assumptions for a loan.</p>
<p>A lender must also avoid the trap of over-reliance upon a borrower’s representations and warranties in the loan documents. If the borrower is mistaken, what is the consequence? Declaring a material default? CASE IN POINT: A Mortgage securing a $1,650,000 loan contained a warranty from borrower that “all leases encumbering the Real Estate are, and shall remain, subordinate to the lien of the Mortgage.” One lease was, in fact, not automatically subordinate to the Mortgage. The Lender’s Title Insurance Policy included an exception for all existing leases and tenancies. The non-subordinated lease contained a Lessee’s Option to Purchase the entire strip center for $1,520,000. Will declaring a default for breach of warranty solve this defect? What is the lender’s collateral position if the Lessee exercises its Option to Purchase?</p>
<p>The business of lending is about making sound and safe loans that profitably perform as planned. Yield is the key. Not foreclosure. The ability to declare a default and start enforcement and foreclosure proceedings is a remedy of last resort. It is not a viable substitute for diligent evaluation of material loan predicates and will rarely fix problems with underlying collateral.</p>
<p>Sound and safe lending requires comprehensive understanding of all relevant issues confronting each commercial real estate project serving as collateral. If lenders are going to make commercial real estate loans, they should be following sound and safe lending practices. To do this, they must either learn how to fully and meaningfully evaluate all of the attendant risks associated with their collateral, or engage counsel with specialized knowledge and experience in commercial real estate lending to perform this function.</p>
<p>Turning a blind eye to the uniqueness of commercial real estate collateral, and to the limitations of many well-meaning but unknowing in-house loan processors, is neither a sound nor a safe lending practice.</p>
<p>Independent, focused and knowledgeable lender due diligence is a must.</p>
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<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>
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<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>Keys Rules For Section 1031 Exchanges</title>
<link>http://harp-onthis.com/keys-rules-section-1031-exchanges/</link>
<comments>http://harp-onthis.com/keys-rules-section-1031-exchanges/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Tue, 05 Aug 2014 11:10:02 +0000</pubDate>
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<description><![CDATA[This is the second installment of a three-part series on Section 1031 like-kind exchanges. Part 1 explained WHY you should consider use of a Section 1031 like-kind exchange when selling commercial or investment real property. Part 2 covers the key […]]]></description>
<content:encoded><![CDATA[
<p><i>This is the second installment of a three-part series on Section 1031 like-kind exchanges. <a title="Section 1031 Like-Kind Exchanges – Part 1 of 3" href="http://harp-onthis.com/business/section-1031-like-kind-exchanges-part-1-of-3/" target="_blank" rel="noopener"><span style="mso-bidi-font-weight: bold;">Part 1</span> explained WHY</a> you should consider use of a Section 1031 like-kind exchange when selling commercial or investment real property. <strong>Part 2</strong> covers the key rules for HOW to implement a Section 1031 like-kind exchange. Part 3 will cover special issues applicable to a Section 1031 like-kind exchange when a Tenant-In-Common [TIC] interest is being acquired.</i></p>
<h1 class="wp-block-heading">KEY RULES FOR SECTION 1031 EXCHANGES</h1>
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<p><span style="font-size: 12.0pt;">The following is an outline of key rules applicable to Section 1031 exchanges. Become familiar with these rules. Unless you intend to completely cash out of real estate investing, a Section 1031 exchange may work to your benefit. If you intend to keep investing in real estate or using real estate in your trade or business, a Section 1031 exchange will maximize the capital you have available to reinvest.</span></p>
<h1 class="wp-block-heading"><b><i><span style="font-size: 12.0pt; color: #589199;">Key Elements of a Section 1031 Exchange*</span></i></b></h1>
<h2 class="wp-block-heading"><span style="font-size: 12.0pt;"> What is Section 1031? </span></h2>
<p><span style="font-size: 12.0pt;"> Section 1031 refers to Section 1031 of the Internal Revenue Code of 1986, as amended.</span></p>
<h2 class="wp-block-heading"><span style="font-size: 12.0pt;"> What does it do? </span></h2>
<p><span style="font-size: 12.0pt;">Section 1031 permits a taxpayer (the Exchangor) to dispose of certain real estate and personal property and replace it with like-kind property without being required to pay taxes on the transaction.</span></p>
<h2 class="wp-block-heading"><span style="font-size: 12.0pt;"> What property qualifies? </span></h2>
<p><span style="font-size: 12.0pt;">To qualify for a Section 1031 exchange, the property being disposed of (the Relinquished Property) must have been used in the Exchangor’s trade or business and/or must have been held for investment purposes. The property being acquired (the Replacement Property) must likewise be acquired for use in the Exchangor’s trade or business or for investment.</span><wp-block data-block="core/more"></wp-block></p>
<h2 class="wp-block-heading"><span style="font-size: 12.0pt;">What property is considered like-kind? </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="1869" data-permalink="http://harp-onthis.com/keys-rules-section-1031-exchanges/closeupwomancustomerreceivinghousekeyfromagentor/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/close-up-woman-customer-receiving-house-key-from-agent-or-realtor-after-finish-agreement-and-sign-contract.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) 2018 Cat Box\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Close,Up,Woman,Customer,Receiving,House,Key,From,Agent,Or","orientation":"1"}" data-image-title="Close,Up,Woman,Customer,Receiving,House,Key,From,Agent,Or" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/close-up-woman-customer-receiving-house-key-from-agent-or-realtor-after-finish-agreement-and-sign-contract.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/close-up-woman-customer-receiving-house-key-from-agent-or-realtor-after-finish-agreement-and-sign-contract.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/close-up-woman-customer-receiving-house-key-from-agent-or-realtor-after-finish-agreement-and-sign-contract.jpg?resize=1000%2C667" alt="close up woman customer receiving house key from agent or realtor after finish agreement and sign contract" class="wp-image-1869" style="width:400px;height:267px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/close-up-woman-customer-receiving-house-key-from-agent-or-realtor-after-finish-agreement-and-sign-contract.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/close-up-woman-customer-receiving-house-key-from-agent-or-realtor-after-finish-agreement-and-sign-contract.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/close-up-woman-customer-receiving-house-key-from-agent-or-realtor-after-finish-agreement-and-sign-contract.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 1000px) 100vw, 1000px" /></figure></div>
<p><span style="font-size: 12.0pt;">For real estate, to be like-kind means simply that real estate must be exchanged for real estate. The rules related to personal property are significantly more complex. </span><span style="font-size: 12.0pt;"><span style="font-size: 12.0pt;">Personal property is any property that is not real estate. </span></span></p>
<p><span style="font-size: 12.0pt;">Real estate exchanges are fairly straightforward. A warehouse may be exchanged for another warehouse or for any other qualifying real estate including, for instance, a factory building, office building, shopping center, single-tenant store, parking garage, or even a parcel of vacant ground so long as it qualifies as being acquired for use in the Exchangor’s trade or business or is to be held for investment. This is not a difficult test to pass. Similarly, a qualifying parcel of vacant ground or a shopping center or office building or factory or other parcels of investment real estate may be exchanged for any other qualifying real estate investment.</span></p>
<p>Personal property exchanges are not so straightforward. <span style="font-size: 12.0pt;">For personal property, the property must be substantially similar and of the same type or class. For example: a car can be exchanged for another car; and a bull can be exchanged for another bull; and a cow can be exchanged for another cow; but, a bull may not be exchanged for either a cow or a car. </span></p>
<p><span style="font-size: 12.0pt;">Although personal property exchange rules are substantially more technical and complicated than real property exchange rules, generally speaking, depreciable tangible personal property held for productive use in a trade or business can be exchanged for other depreciable tangible personal property held for productive use in a trade or business so long as they fall within the same NAICS classification code. </span></p>
<p><span style="font-size: 12.0pt;">For instance, Limited Service Restaurants such as fast food restaurants, pizza delivery, sandwich shops, etc. fall within 2012 NAICS Code 722513. Accordingly, the assets of one can be exchanged for the assets of the other under Section 1031. But, note that the NAICS Code for a bar, tavern or nightclub is 722410, and the NAICS Code for a full service restaurant is 722511, so an exchange of assets of either of these for the assets of the other, or the assets of a Limited Service Restaurant (even though otherwise physically identical), may not likely be considered “like kind”. </span></p>
<p><span style="font-size: 12.0pt;">The point, for purposes of this post, is that exchange rules for personal property are substantially more complex than exchange rules for real property. Accordingly, if you are exchanging personal property – either in conjunction with an exchange of real property or purely as a personal property exchange – great care must be taken to comply with the personal property exchange rules to receive the benefits of a tax deferred exchange under Section 1031.<br /></span></p>
<h2 class="wp-block-heading"><span style="font-size: 12.0pt;">What property is excluded? </span></h2>
<p><span style="font-size: 12.0pt;">Some types of property are expressly excluded from tax deferred exchange treatment by statute, rule or regulation The following types of property <em>do not qualify</em> for aSection 1031 exchange: stocks, bonds, partnership interests, limited liability company interests, personal residences, stocks in trade or inventory, and certain other intangible property.</span></p>
<h2 class="wp-block-heading"><span style="font-size: 12.0pt;">Are there timing issues? </span></h2>
<p><span style="font-size: 12.0pt;">Section 1031 exchanges can be simultaneous, but they are not required to be. In fact, most exchanges made pursuant to Section 1031 are not simultaneous. There are, however, strict timing rules that apply tonon-simultaneous exchanges and strict rules prohibiting access to funds.</span></p>
<h2 class="wp-block-heading"><span style="font-size: 12.0pt;">What are the time limits? </span></h2>
<p><span style="font-size: 12.0pt;">The Replacement Property or properties must be identified, in writing, not later than forty-five days after the Relinquished Property is transferred (the Identification Period). The Replacement Property or properties must be acquired not later than the earlier of (i) 180 days after the Relinquished Property was transferred, or (ii) the due date for the Exchangor’s tax return, including any extensions (the Acquisition Period). The Identification Period is included within the Acquisition Period.</span></p>
<h2 class="wp-block-heading"><span style="font-size: 12.0pt;">How many Replacement Properties may be identified? </span></h2>
<p><span style="font-size: 12.0pt;">There is no fixed limit to the number of Replacement Properties that may be identified, but there are two primary rules that apply: (1) the Three-Property Rule, and (2) the 200% Rule.</span></p>
<p><span style="font-size: 12.0pt;"> 1. The Three-Property Rule allows you to identify up to three (3) properties as potential Replacement Properties, regardless of value. You need not acquire all three properties, but as of the end of the Identification Period, not more than three properties may be identified. This is the most commonly used identification rule.</span></p>
<p><span style="font-size: 12.0pt;"> 2. The 200% Rule allows you to identify any number of potential Replacement Properties so long as the aggregate value of all identified properties does not exceed 200% of the value of the Relinquished Property. You need not acquire all identified properties.</span></p>
<p><span style="font-size: 12.0pt;">Generally, if you identify more properties than permitted, you are treated as if you have not identified any properties. However, there is one more rule that might save the day. The 95% Rule allows you to identify any number of potential Replacement Properties, regardless of value, so long as you <em>actually acquire</em> within the Acquisition Period at least 95% of the value of all properties identified. Use of the 95% Rule is rare, and is generally considered more a safety valve rule than an intentionally used exchange rule<br /></span></p>
<h2 class="wp-block-heading"><span style="font-size: 12.0pt;"> Must all exchange proceeds be used? </span></h2>
<p><span style="font-size: 12.0pt;">There is no requirement that all proceeds received upon sale of the Relinquished Property be used to acquire the Replacement Property. Any exchange proceeds not used, however, are taxable.</span></p>
<h2 class="wp-block-heading"><span style="font-size: 12.0pt;">What constitutes exchange proceeds? </span></h2>
<p><span style="font-size: 12.0pt;">Exchange proceeds means the net sale price of the Relinquished Property, including all net equity and the amount of any mortgage encumbering the Relinquished Property, whether paid off at closing or assumed by the purchaser. It is not sufficient to merely reinvest the net equity received upon sale. The purchase price of the Replacement Property must equal or exceed the aggregate of the net equity received upon sale of the RelinquishedProperty plus any mortgage encumbering the Relinquished Property at the time of the sale closing.</span></p>
<p><span style="font-size: 12.0pt;"><em>Example</em>: If the Relinquished Property is encumbered by a $700,000 mortgage and is sold for $1 million as part of a Section 1031 exchange transaction, to defer all taxes, the purchase price of the Replacement Property must be at least $1 million, not merely $300,000.</span></p>
<h2 class="wp-block-heading"><span style="font-size: 12.0pt;">When can the Exchangor obtain access to unused proceeds? </span></h2>
<p><span style="font-size: 12.0pt;">Proceeds from sale of the Relinquished Property may be accessed only when the exchange is completed, fails, or expires. If no potential Replacement Properties are identified within the Identification Period, the exchange fails, and the Exchangor may receive the funds. Those funds will, however, be taxed in the year received. <em>But note</em>: If a mortgage was paid off at the Closing of the Relinquished Property, and the amount of the mortgage was greater than the tax basis of the Relinquished Property, the amount paid to satisfy the mortgage in excess of the tax basis of the Relinquished Property is taxable in the year of Closing of the Relinquished Property.</span></p>
<p><span style="font-size: 12.0pt;">If all properties identified within the Identification Period are acquired within the Acquisition Period, the exchange is completed, and any remaining funds may be received by the Exchangor. Those remaining funds are taxable. If less than all identified properties are acquired, but the Acquisition Period expires, all remaining funds may be received by the Exchangor, but are taxable.</span></p>
<h2 class="wp-block-heading"><span style="font-size: 12.0pt;">Conclusion:</span></h2>
<p><span style="font-size: 12.0pt;">These are the basics. As tax rates rise, Section 1031 exchanges become increasingly valuable.</span></p>
<p><span style="font-size: 12.0pt;">A Section 1031 exchange is not a new and exotic tax shelter scheme. Tax deferred exchanges of like-kind property have been recognized by the Internal Revenue Service as a valid tax deferral strategy since the early 1920s. The structure and effect of a Section 1031 exchange were specifically authorized by Congress by enacting Section 1031 of the Internal Revenue Code of 1986, as amended, and the Internal Revenue Service has promulgated extensive regulations for its implementation.</span></p>
<p><span style="font-size: 12.0pt;">Use Section 1031 to your advantage, but be sure to strictly comply with the Section 1031 rules.</span></p>
<p>* <em>Special Thanks to my tax partner, James M. Mainzer, for consulting on this post.</em></p>
<p><span style="font-size: 12.0pt;">_________________________________</span></p>
<p><i><span style="font-size: 12.0pt;">As required by the Internal Revenue Service under Circular 230, you are advised that any U.S. federal tax advice contained in this article is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this article.</span></i></p>
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<title>Section 1031 Like-Kind Exchanges – Part 1 of 3</title>
<link>http://harp-onthis.com/section-1031-like-kind-exchanges-part-1-of-3/</link>
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<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Tue, 22 Jul 2014 15:31:40 +0000</pubDate>
<category><![CDATA[Business]]></category>
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<description><![CDATA[This is the first installment of a three-part series on Section 1031 like-kind exchanges. Part 1 explains WHY you should consider use of a Section 1031 like-kind exchange when selling commercial or investment real property. Part 2 covers the key […]]]></description>
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<p><i>This is the first installment of a three-part series on Section 1031 like-kind exchanges. <b>Part 1</b> explains WHY you should consider use of a Section 1031 like-kind exchange when selling commercial or investment real property. Part 2 covers the key rules for HOW to implement a Section 1031 like-kind exchange. Part 3 covers special issues applicable to a Section 1031 like-kind exchange when a Tenant-In-Common [TIC] interest is being acquired.</i></p>
<h1 class="wp-block-heading"><b>Why Consider a §1031 Like-Kind Exchange? </b></h1>
<p>What if I told you that you could get a hefty 0% interest loan from the federal government to invest in commercial or industrial real estate? Would you be interested?</p>
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<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/07/RSP.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="95" data-attachment-id="884" data-permalink="http://harp-onthis.com/section-1031-like-kind-exchanges-part-1-of-3/rsp/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/07/RSP.jpg?fit=334%2C106" data-orig-size="334,106" 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" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/07/RSP.jpg?fit=300%2C95" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/07/RSP.jpg?fit=334%2C106" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/07/RSP.jpg?resize=300%2C95" alt="RSP" class="wp-image-884" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/07/RSP.jpg?resize=300%2C95 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/07/RSP.jpg?w=334 334w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>Better yet, what if that loan has no fixed monthly, quarterly, or annual repayment obligations and does not show up on your credit report or balance sheet as an outstanding liability?</p>
<p>Still better yet, what if the terms of the loan provide that it may never have to be repaid? Are you interested now?</p>
<p>In effect,* that’s what a Section 1031 like-kind exchange can do for you.</p>
<h2 class="wp-block-heading"><b>Here’s how:</b></h2>
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<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1871" data-permalink="http://harp-onthis.com/section-1031-like-kind-exchanges-part-1-of-3/realestatetrading-businessmenagreetobuy-sellreal/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/businessman-exchanging-property.jpg?fit=1000%2C665" data-orig-size="1000,665" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2019 Wasan Tita\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Real,Estate,Trading.,Businessmen,Agree,To,Buy,-,Sell,Real","orientation":"1"}" data-image-title="Real,Estate,Trading.,Businessmen,Agree,To,Buy,-,Sell,Real" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/businessman-exchanging-property.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/businessman-exchanging-property.jpg?fit=1000%2C665" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/businessman-exchanging-property.jpg?resize=400%2C266" alt="businessman exchanging property" class="wp-image-1871" width="400" height="266" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/businessman-exchanging-property.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/businessman-exchanging-property.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/businessman-exchanging-property.jpg?resize=768%2C511 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>Section 1031 of the Internal Revenue Code permits </p>
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<p>a taxpayer to dispose of property used in its trade or business or held for investment purposes without paying federal income taxes, including capital gains taxes, on any gain arising from the transaction. To qualify for nonrecognition of gain, the taxpayer disposing of the qualifying property must comply with the technical requirements of Section 1031 by exchanging the property for other like-kind property identified within 45 days after Closing, and acquiring the identified property within the time period provided by statute. In general, that time period is 180 days, but may be cut short if the taxpayer files its tax return for the period in which the Section 1031 like-kind exchange was initiated before the 180-day period expires. For real estate, “like-kind” generally means any other real estate, so long as it is acquired and held for use in your trade or business or for investment purposes. The key Section 1031 like-kind exchange rules are outlined later, in Part 2 of this series. This article addresses the advantages of a Section 1031 like-kind exchange.</p>
<p>To demonstrate the value of a Section 1031 like-kind exchange, let’s focus on the concept that a Section 1031 like-kind exchange permits you to dispose of qualifying property without being obligated to pay federal income taxes on any gain arising from the transaction. It works like this:</p>
<h2 class="wp-block-heading"><b>Scenario No. 1 </b></h2>
<p>Suppose you bought a parcel of vacant ground for $100,000, with the intent to use the parcel in your trade or business or simply to hold for investment purposes. A few years later, you decide to sell the parcel, which has risen in value to $300,000. Upon sale, you will have a taxable gain of $200,000.</p>
<p>Assume a federal capital gains tax rate of 20%. This is the current capital gains tax rate under the Internal Revenue Code.</p>
<p>At a 20% capital gains tax rate, the federal income tax payable in Scenario No. 1 is $40,000 (20% x $200,000 = $40,000). If you held the property free and clear, with no mortgage, you would be left with $260,000, which could, after payment of any applicable state taxes, be used to acquire another property ($300,000 sale price <i>less</i> $40,000 capital gains tax = $260,000).</p>
<p>States have their own taxes that may also be applicable. Illinois has a 5% flat tax on income. In Illinois, after applying the 20% federal capital gains tax rate and also applying the 5% Illinois flat tax rate, the effective rate on the gain is 25%. Accordingly, the effective tax on the $200,000 gain for an Illinois taxpayer would be $50,000, leaving only $250,000 available to reinvest. [Additionally, if that is not bad enough, you may also owe and additional 3.8% Medicare Surtax on net investment income.]
<h2 class="wp-block-heading"><b>Scenario No. 2 </b></h2>
<p>Suppose instead of purchasing a parcel of vacant property, as assumed in Scenario No. 1, you bought a parcel of improved real estate. Suppose the purchase price was $500,000, with $100,000 allocated to the land and $400,000 allocated to building improvements. Ten years later, you sell the property for $700,000. During the ten-year period you owned the property, you deducted $100,000 as depreciation expense.</p>
<p>Although the property is sold for $200,000 more than your purchase price, the gain you realize is actually $300,000 because the $100,000 accumulated depreciation deduction reduces the property’s tax basis by a corresponding amount. As a consequence, although you purchased the property for $500,000, the current tax basis (after depreciation) is only $400,000. Therefore, the taxable gain is $300,000, calculated by deducting the tax basis from the sale price.</p>
<p>At first glance, you may believe that the effect of the foregoing is to increase your capital gain to $300,000 resulting in a federal capital gains tax of $60,000 (20% x $300,000 = $60,000); but that is not correct. Under current tax law, you are required to first pay a tax on an amount equal to the accumulated depreciation taken as a deduction on the property, at a depreciation-recapture tax rate of 25%, with the balance of the gain taxed at the 20% federal capital gains rate. [Once again, you may also owe an additional 3.8% Medicare Surtax on net investment income.]
<p>As a consequence, the federal tax you will owe is (at least) $65,000, (25% x $100,000 depreciation-recapture tax = $25,000, plus 20% x $200,000 capital gain = $40,000, for a total federal tax of $65,000 – plus any additional 3.8% Medicare Surtax that may be applicable). If we once again assume for simplicity that you did not have a mortgage on the property, you would be left with $635,000 (or less) which, after payment of any applicable state tax on the gain, you could reinvest in another property. In Illinois you would pay an additional flat tax of $15,000 on the gain [$300,000 x 5% Illinois flat tax rate], leaving you only $620,000 (or less) to reinvest.</p>
<h1 class="wp-block-heading"><b>The Benefit of a Section 1031 Like-Kind Exchange</b></h1>
<p>The beauty of a Section 1031 like-kind exchange is that the gain on the transactions described in Scenario No. 1 and Scenario No. 2 is not recognized at the time of sale, with the result that you do not have to pay either the federal capital gains tax or the federal depreciation-recapture tax [and, in Illinois, you do not have to pay the 5% state flat tax] on the transaction. Likewise, any applicable 3.8% Medicare Surtax would be deferred as well. Consequently, in Scenario No. 1, you will have the whole $300,000 to reinvest; and in Scenario No. 2, you will have the whole $700,000 to reinvest (once again, assuming no mortgage).</p>
<p>The capital gains taxes and the depreciation-recapture taxes are not waived by use of a Section 1031 like-kind exchange but, rather, the obligation to pay these taxes is deferred until a future transaction that results in a taxable event that recognizes a gain. [The same is true with the Illinois flat tax and the Medicare surtax.]
<p>Since there is no prohibition against utilizing the Section 1031 like-kind exchange procedure in successive transactions, however, payment of taxes on the gain can be deferred indefinitely. If the taxpayer is a limited liability company, corporation, trust, or other entity with a perpetual existence, the day of reckoning for payment of the capital gains taxes and depreciation-recapture taxes [and state flat tax] may never come. You will, however, limit your depreciation deduction because the tax basis of the relinquished property will carry over as the tax basis of the replacement property. This tax basis can be adjusted upward if additional capital is contributed to acquire the replacement property or, thereafter, to improve the replacement property.</p>
<p>If the taxpayer/exchangor is a natural person rather than a limited liability company, corporation, trust, or other legal entity, the Internal Revenue Code provides that upon the death of the taxpayer/exchangor, the tax basis of all property owned by the taxpayer is adjusted to the property’s fair market value as of the date of death. As a consequence, no capital gains tax or depreciation-recapture taxes will ever be recognized on the prior exchanges. [In Illinois, the tax basis adjusts at death also, avoiding application of the state flat tax on the increase in value.]
<p>It is these attributes that form the basis of my statement at the outset of this article that it is possible to, in effect, obtain a long-term loan* from the federal government, without interest, without scheduled periodic payments, without reflecting an outstanding liability on your credit report or balance sheet, and, possibly, with no obligation to ever repay.</p>
[*As a fiscal conservative, I understand the argument that it is not <i>actually</i> like a “loan” because the money <i>actually</i> belongs to the taxpayer, not the government until taken via taxation. It may not be a perfect analogy, but you get the point.]
<p>There are strict technical rules that apply to Section 1031 like-kind exchanges. Among them are technical rules for exchanging property subject to a mortgage. For this reason, advice from a knowledgeable tax adviser is critical when structuring a Section 1031 like-kind exchange. In Part 2 of this series, entitled <i>Key Rules to Implementing a Section 1031 Like-Kind Exchange</i>, we will review the basic rules that apply to carrying out a Section 1031 like-kind exchange to obtain its advantages.</p>
<p>_________________________________________________________________________</p>
<p><i>As required by the Internal Revenue Service under Circular 230, you are advised that any U.S. federal tax advice contained in this article is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this article.</i></p>
<p> </p>
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<title>PERFECT SELLER – Selling Commercial Real Estate</title>
<link>http://harp-onthis.com/perfect-seller/</link>
<comments>http://harp-onthis.com/perfect-seller/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 07 Jul 2014 14:30:54 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[broker]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[data room]]></category>
<category><![CDATA[due diligence binder]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[listing]]></category>
<category><![CDATA[loan documentation]]></category>
<category><![CDATA[property]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[seller]]></category>
<category><![CDATA[transactions]]></category>
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<description><![CDATA[ Tips on Selling Commercial Real Estate Sellers are funny people. Not “ha ha” funny, but funny in the sense that they sometimes have an odd way of looking at things when they are selling commercial real estate. This is not […]]]></description>
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<h2 class="wp-block-heading"><b> Tips on Selling Commercial Real Estate</b></h2>
<p>Sellers are funny people. Not “ha ha” funny, but funny in the sense that they sometimes have an odd way of looking at things when they are selling commercial real estate.</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>This is not an indictment against any unique class of people. Let’s face it, sooner or later virtually all commercial real estate Buyers become commercial real estate Sellers. It is simply a recognition of an odd twist that occurs in the mindset of many commercial real estate investors when the tables are turned and they become Sellers instead of Buyers. If you are selling commercial real estate, or are a listing broker representing a party selling commercial real estate, here’s what you should do. </p>
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<h2 class="wp-block-heading">A Common Mistake when Selling Commercial Real Estate</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="1875" data-permalink="http://harp-onthis.com/perfect-seller/realestateprofessionalsandclientsdiscussinghomepurchasesinsuranceor/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.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 Kritsanai Chaemcharindamr\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Real,Estate,Professionals,And,Clients,Discussing,Home,Purchases,,Insurance,Or","orientation":"1"}" data-image-title="Real,Estate,Professionals,And,Clients,Discussing,Home,Purchases,,Insurance,Or" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.jpg?resize=400%2C267" alt="home sales agents sit at the office with new homebuyers in the office" class="wp-image-1875" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/home-sales-agents-sit-at-the-office-with-new-homebuyers-in-the-office.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>Generally, once a Seller has made the decision to “sell”, most Sellers want to move ahead with as little pain and delay as possible. Right?</p>
<p>What typically happens? The Seller finds a commercial real estate broker and lists the property. Once the Seller receives a letter of intent or contract offer, the Seller contacts its attorney to prepare or review the contract. The contract is virtually always subject to a “due diligence review” period during which the Buyer is to investigate the property to determine whether it satisfies Buyer’s use or investment criteria. The contract invariably includes a variety of “Seller deliveries”: a title commitment; copies of documents of record; ALTA survey; a rent roll; copies of leases; service contracts; etc. etc. etc.</p>
<p>So, what does the typical Seller do?</p>
<p>Often, the Seller waits until the contract is fully executed before ordering title, obtaining copies of documents of record, compiling leases, ordering a Survey, and gathering other required Seller deliveries.</p>
<p>Worse, many Seller’s adopt the attitude that: “<em>Buyer’s financing and due diligence is Buyer’s problem – leave me out of it</em>.”</p>
<p>While it is certainly true that Buyer’s financing and due diligence is the responsibility of the Buyer, it is also true that much of the information a Buyer needs must be obtained from the Seller. If the Buyer is delayed or obstructed in obtaining necessary information it will be delayed in performing its due diligence review and unable to satisfy necessary conditions for financing. Even if the contract is “not contingent on financing”, the practical reality – in most cases – is that if financing is not obtained the transaction will not Close. Failure to take reasonable steps to facilitate Buyer’s due diligence and financing, then, ultimately becomes the “Seller’s problem”.</p>
<h2 class="wp-block-heading"><b>What SHOULD a Seller do? </b></h2>
<p>Sellers should become proactive instead of reactive. Instead of waiting until a letter or intent is received or a contract is signed before compiling information a Buyer will almost certainly need, a Seller should compile the information a Buyer will need as soon as the Seller decides to sell.</p>
<p>How does Seller know what the Buyer will need? Interesting question. When the Seller was a Buyer, he/she knew exactly what a Buyer needed to evaluate the property, get financing, and Close. Still, even if amnesia has set in, what a Buyer needs is fairly predictable. [See “<a title="10 THINGS EVERY BUYER NEEDS TO CLOSE A COMMERCIAL REAL ESTATE LOAN" href="http://harp-onthis.com/commercial-real-estate/10-things-every-buyer-needs-to-close-a-commercial-real-estate-loan/">10 Things Every Buyer Needs to Close a Commercial Real Estate Loan</a>“.]
<p>If you are a Seller and are, indeed, committed to selling your property, sooner or later you are going to be called upon to deliver at least the typical Seller deliveries. Sooner is better than later. It will speed up the due diligence process and enable the Buyer to determine at the earliest possible date whether there are obstacles to Closing.</p>
<p>Once gathered, the Seller Deliveries should be bound in a “<em>Due Diligence Binder</em>” for distribution to interested Buyers.</p>
<p>It will typically expedite the transaction if the Due Diligence Binder is delivered to the Buyer when the Buyer is first seriously considering purchase of a property – even before the purchase contract is drafted. If, in fact, conditions do exist that prevent a Buyer from proceeding to Closing, it is in Seller’s interest to find out now rather than later so the property can be kept on the market and made available to a Buyer who may be in a position to proceed.</p>
<p>Certainly, Seller may require a prospective Buyer to sign a Confidentiality, Non-Use and Non-Disclosure Agreement as a condition to receiving the Due Diligence Binder if the Seller feels this is desirable.</p>
<p>If the documents are voluminous (such as if the property is a large shopping center, office building or mixed use development with many tenants), an alternative is establish a so-called “<em>war room</em>” where copies of all the documents are maintained and can be made readily available for inspection by prospective Buyers. The war you can be a physical location, or, perhaps preferably, can be an secure online <a title="Wikipedia - Data Room defined" href="http://en.wikipedia.org/wiki/Data_room" target="_blank" rel="noopener">data room</a>. Even then, all title related documents should be compiled in a Due Diligence Binder for ready review by Buyer’s attorney.</p>
<h2 class="wp-block-heading">What a Due Diligence Binder Should Include</h2>
<p>What should the Due Diligence Binder or war room include? At a minimum, it should include the following:</p>
<ol class="wp-block-list">
<li>Current Commitment for Title Insurance</li>
<li>Copies of all documents of record referred to in the Commitment for Title Insurance which will remain on Schedule B of the Commitment of Title Insurance after Closing (i.e. easements, restrictions, covenants, etc.)</li>
<li>Current real estate tax bill(s)</li>
<li>A current Survey prepared in accordance with 2011 (or current) Minimum Standard Detail Requirements for ALTA/ASCM Land Title Surveys, showing all improvements as currently exist, ideally including items 1 through 4, 6(a), 7(a), 7(b)(1), 8 through 10(a), 11(a) and 14 from Table A of the Optional Survey Requirements for ALTA Surveys.</li>
<li>If the property is income producing, operating statements for the past 3 years, a Rent Roll and copies of all leases, licenses and concessions. [Don’t forget about cell-tower leases and billboard or sign leases, and parking leases.]</li>
<li>A schedule of any personal property to be included.</li>
<li>If the property is an out-lot or otherwise part of a larger whole and is required to participate in payment of common area maintenance (CAM) charges, copies of invoices and CAM charge breakdowns for at least the past 2 years.</li>
<li>Service contracts (for elevator, fire/sprinkler maintenance, scavenger, snow removal and landscaping, security, etc.).</li>
<li>Any available environmental site assessment reports (Phase I and Phase 2) and, certainly, any NFR letters or governmental notices relating to environmental issues.</li>
<li>Blueprints, building plans, site plans, schematics, soil compaction test reports, structural reports, roof warranties and other information relating to existing improvements.</li>
</ol>
<p>To the extent practical, a Seller should compile all information in its possession or control that Seller would reasonably want to see if it were a Buyer conducting its own due diligence review to decide whether to purchase the property. (See: <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><a title="Due Diligence Checklists for Commercial Real Estate Transactions" href="http://harp-onthis.com/commercial-real-estate/due-diligence-checklists-for-commercial-real-estate-transactions/" target="_blank" rel="noopener">)</a>.</p>
<p>If you are a <em>REALLY</em> bold Seller, you might even consider preparing and including with the Due Diligence Binder a bare-boned but workable form of Purchase Agreement you would be willing to accept if tendered with an acceptable purchase price from a qualified Buyer.</p>
<p>Of course, to be a <em>PERFECT SELLER</em>, you need to understand the issues presented by the Due Diligence Binder’s contents, especially as they relate to access, use and financing, and be prepared to work with the Buyer to resolve problematic issues to get the transaction to Closing.</p>
<h2 class="wp-block-heading">SELLER RESISTANCE:</h2>
<p>Sellers are sometimes reluctant to voluntarily offer this information up front. Why? There are four common reasons.</p>
<p>1. Some Sellers think they should not volunteer anything. That maybe the Buyer will forget to ask for that “one document” that reveals a defect, thereby enabling the Seller to “get away with” selling the property without addressing the issue.</p>
<p>If this is the thinking, it is naive and short sighted. What is more likely to happen is that the Buyer will discover the defect during its due diligence investigation and will either terminate the transaction or demand a significant price concession under the threat of contract termination. On the other hand, it has been my experience that if the defect is disclosed at the outset, when the Buyer is enthusiastically formulating the project concept, resolution of the issue may be factored into the Buyer’s development plan and never again become a major transaction issue.</p>
<p>2. Another reason I hear is that the Seller does not wish to prematurely spend the money to put the due diligence materials together “in case the transaction falls apart”. The Seller is concerned with “<em>wasting money</em>“.</p>
<p>My response to this is two-fold: i) If the Seller is committed to Selling the property, the expenditure is not wasted even if the current transaction fails because most of the information will be useful when the next Buyer comes along; and ii) the benefit of facilitating Buyer’s due diligence and accelerating Closing will often far exceed the carrying cost of compiling this information in advance. Besides, the sooner you can get to Closing, the more likely the transaction is to close.</p>
<p>3. A variation of the “<em>money</em>” theme is the notion that once a Buyer spends large amounts of money performing due diligence the Buyer becomes committed to the deal and is more likely to Close.</p>
<p>This may occasionally be true, but experience shows that most Buyers will consider due diligence expenses to be <a title="Definition of "Sunk Costs"" href="http://www.investopedia.com/terms/s/sunkcost.asp" target="_blank" rel="noopener">sunk costs</a> and walk away rather than throw good money away chasing a bad deal. The result is that the property may then need to go back on the market to start from square one. If this happens more than once, the property may gain an reputation as a “problem property”, thereby depressing its value in the marketplace.</p>
<p>4. The best reason I hear (usually from other lawyers) is that volunteering this information risks exposing Seller to liability on a theory of Seller implicitly warranting the accuracy of the contents of the Due Diligence Binder.</p>
<p>My response is that it only takes a little bit of creative draftsmanship to mitigate this risk. Further, preparing and offering a well-constructed Due Diligence Binder documents Seller’s deliveries and positions the Seller to avoid most contractual warranties, thereby reducing Seller’s exposure to liability.</p>
<h2 class="wp-block-heading">WHAT ARE THE ADVANTAGES TO SELLER?</h2>
<p>If you are a Seller of Commercial or Industrial Real Estate and conscientiously follow the recommendations outlined above, your transaction will proceed more smoothly and quickly, the likelihood of Closing will increase, and you will save money by avoiding the need to renegotiate issues that should have been addressed at the outset of the transaction.</p>
<p>To be sure, other issues will arise. They always do. But your chances of proceeding to Closing on-time and on-budget will greatly increase if you make the effort to be as close to a Perfect Seller as possible.</p>
<p><em>Thanks for listening,</em></p>
<p><em> R. Kymn Harp</em></p>
<p>PS. If you are a commercial real estate broker, I encourage you to discuss with your Seller the strategy outlined in this post the moment the property is listed for sale. Print this post, or send your Seller a link to this post if you wish. I assure you, if your Seller follows the advice in this article, everyone will benefit.</p>
<p>Kymn</p>
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