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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>
<guid isPermaLink="false">http://harp-onthis.com/?p=1173</guid>
<description><![CDATA[Adaptive Reuse Of Underutilized Real Estate Cool Projects – A Love Affair Revisited We are entering a new frontier for adaptive re-use. The worldwide COVID-19 pandemic has left the urban commercial landscape in tatters. Shuttered vacant commercial space is commonplace […]]]></description>
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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>
]]></content:encoded>
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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>BEYOND THE PANDEMIC – Opportunity Awaits</title>
<link>http://harp-onthis.com/beyond-the-pandemic-opportunity-awaits/</link>
<comments>http://harp-onthis.com/beyond-the-pandemic-opportunity-awaits/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Tue, 01 Dec 2020 20:55:57 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[adaptive reuse]]></category>
<category><![CDATA[business]]></category>
<category><![CDATA[Chicago]]></category>
<category><![CDATA[Chicago attorneys]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[Illinois]]></category>
<category><![CDATA[leasing]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[redevelopment]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1589</guid>
<description><![CDATA[If experience teaches us anything, it teaches that the COVID-19 pandemic will end.  Things we enjoyed before, will be enjoyed again. People still want to shop, travel, dine-out, go to theater, attend live concerts and sporting events, marvel at fireworks […]]]></description>
<content:encoded><![CDATA[
<p>If experience teaches us anything, it teaches that the COVID-19 pandemic will end. Things we enjoyed before, will be enjoyed again. People still want to shop, travel, dine-out, go to theater, attend live concerts and sporting events, marvel at fireworks displays, celebrate family gatherings, and do all the things that enrich our lives. Demand did not simply evaporate; it remains strong. Pressure is building. Pent-up demand is rising. It is waiting to be unleashed. Are you ready?</p>
<p>Pundits speak of a “<em>new normal</em>” – but what does that even mean?</p>
<p>Not long ago, during the <em>Great Recession,</em> we heard talk of a <em>new normal</em> as well. How long did it take for that <em>new normal</em> to become a faded memory once the economy rebounded and began to expand? (Not long.)</p>
<p>Clearly, this pandemic has been devastating, with tragic loss of life, severe illness, and widespread economic devastation. New words and phrases have entered our lexicon, like asymptomatic, social distancing, bending-the-curve, intubation, N95, no-mask/no entry, quarantine, self-isolation, COVID-Lease amendments, COVID-abatements, PPP loans, sneeze-barriers, and the like. Although we learned in pre-school to “wash our hands”, we’ve gained new appreciation for this simple task since March 2020.</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="1933" data-permalink="http://harp-onthis.com/beyond-the-pandemic-opportunity-awaits/office-space/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/office-space.jpg?fit=768%2C512" data-orig-size="768,512" 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="office-space" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/office-space.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/office-space.jpg?fit=768%2C512" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/office-space.jpg?resize=401%2C266" alt="office space" class="wp-image-1933" width="401" height="266" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/office-space.jpg?w=768 768w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/office-space.jpg?resize=300%2C200 300w" sizes="auto, (max-width: 401px) 100vw, 401px" /></figure></div>
<p>Discussions now focus on a need to reconfigure health facilities, office space, restaurants, hotels, conference centers, congregate living facilities, schools, places of worship, public transportation, shopping centers, and more, to prevent the spread of infectious disease. Some claim this pandemic will cause a seismic shift away from urban living and centralized business districts, in favor of far-flung regions linked together by Zoom or other remote video-conferencing technologies.</p>
<p>But will it? </p>
<p>A growing number of medical experts believe that multiple effective vaccines and treatments will be available shortly, which could bring the COVID pandemic to an end by the third or fourth quarter of 2021. What then?</p>
<p>When COVID cases are no longer in the news, will we remain preoccupied with social distancing, isolation, remote offices, and remote meetings? Or will be get back to business as usual? Will we stay hunkered down in our suburban home-offices while our competition is out actively meeting with prospects and clients, looking for development opportunities, and doing business in person?</p>
<p>Is the central business district dead? Is urban living to be no more? Will theaters, bars, and restaurants remain closed? Navy Pier? Magnificent Mile? The restaurant and shopping scene in Chicago’s West Loop, Fulton Market, Pilsen, Greektown, Streeterville, Chinatown, Little Italy, Bronzeville, River North, and neighborhoods and suburbs beyond? Are they gone for good? </p>
<p>How long will it take before the “new normal” gives way to the “old normal” – with restaurants and banquet halls reopening, people dining out, going to live concerts, returning to the office, taking vacations, meeting in-person with customers, clients and friends, going to sporting events and live theater or the movies, spending money on leisure activities, buying urban condos, staying at downtown hotels, and doing all the things they recently enjoyed? </p>
<p>What are the implications for adaptive reuse of commercial space left vacant by this pandemic, and for commercial real estate investment and development, and for business in general? What will be in demand this next summer and fall? </p>
<p>What will be the turning point? Many of my clients are already looking past the pandemic to the next wave of opportunity. Are you? </p>
<p>How are you positioning yourself for the opportunities that are coming? Is your professional team still intact? Did they retire? Move away? Go out of business?</p>
<p>What opportunity awaits?</p>
<p> Are you ready for what comes next? Should we talk?</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">1589</post-id> </item>
<item>
<title>Your Real Estate Contract – Two Points to Consider</title>
<link>http://harp-onthis.com/1406-2/</link>
<comments>http://harp-onthis.com/1406-2/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Wed, 25 Apr 2018 19:08:10 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[loans]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1406</guid>
<description><![CDATA[Two Things You Need to Know As my readers know, I often represent real estate investors. When I draft a real estate contract I strive to make each provision absolutely clear in its meaning, and try to have it serve […]]]></description>
<content:encoded><![CDATA[
<h1 class="wp-block-heading">Two Things You Need to Know</h1>
<div class="wp-block-image size-medium wp-image-1145">
<figure class="alignleft"><img data-recalc-dims="1" 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>As my readers know, I often represent real estate investors. When I draft a real estate contract I strive to make each provision absolutely clear in its meaning, and try to have it serve as a workable road map to closing. Occasionally a client will draft a real estate contract on its own (or have a broker draft it), and sign it without my review or input. The client will then send it to me “<em>to close the transaction</em>“. Though I counsel clients that this can be a remarkably risky practice, some clients . . . being clients . . . do as they wish and ignore my advice. Such is life.</p>
<p>When faced with closing a transaction governed by a real estate contract I did not have a hand in preparing, I do my best. It is usually not a complete disaster, but there are often misunderstandings because of provisions that are not entirely clear.</p>
<p></p>
<p></p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1766" data-permalink="http://harp-onthis.com/1406-2/real-estate-agent-delivering-sample-homes-to-customers/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="real-estate-agent-Delivering-sample-homes-to-customers" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?resize=400%2C266" alt="real estate agent Delivering sample homes to customers" class="wp-image-1766" width="400" height="266" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/real-estate-agent-Delivering-sample-homes-to-customers.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>There are also situations where a provision in a real estate contract may be legally sufficient, but the seller and/or its attorney simply don’t understand the actual meaning of the provision. With a clearer provision the misunderstanding could be avoided, but the legal ramifications of certain provisions still are what they are, rather that what some imagine them to be. The following are two examples I have run into in the last week that I believe deserve comment and explanation:</p>
<p><strong>NO MORTGAGE CONTINGENCY: </strong> Contrary to the understanding by some Seller’s attorneys and their clients, the fact that a real estate contract does not include a mortgage contingency – and may even expressly state that the transaction is <em>not contingent</em> upon the Buyer obtaining a mortgage – does <strong><em>not</em></strong> mean that the Buyer is not obtaining a loan and using mortgage financing. It simply means that the Buyer’s obligation to proceed to closing under the real estate contract is not <em>contingent</em> upon the Buyer obtaining a mortgage loan.</p>
<p>Many investor Buyers have strong relationships with their lender. They know what their lender requires, and know that the property they are acquiring will qualify as collateral for a mortgage loan from their lender. Consequently, they do not make obtaining a mortgage a <em>contingency</em> to closing in the real estate contract. Be that as it may, the Buyer may still obtain a mortgage loan, and may fund the property purchase using loan proceeds.</p>
<p>This is the practical equivalent to the situation where a real estate contract does contain a mortgage contingency, but the contingency has been satisfied because the Buyer has been approved for a mortgage loan. <em>At that point</em> the contingency expires and the contract is no longer subject to a mortgage contingency. The Buyer will still be closing using its lender and the proceeds of its mortgage loan. Probably no one disputes that.</p>
<p>Likewise, in a real estate contract where there is no mortgage contingency from the beginning, the absence of a mortgage contingency does not, without more, imply at all that there will be no mortgage lender. If the parties intend to provide that a contract is to be a cash transaction with no lender, that should be expressly provided in the real estate contract. Otherwise, the mere absence of a <em>mortgage contingency</em> does not mean there will be no lender – it<i> </i>simply means the Buyer is taking the legal and financial risk that a mortgage will be obtained.</p>
<p>2. <strong>AN “AS IS” CLAUSE DOES NOT MEAN NO INSPECTION</strong>: As with the absence of a mortgage contingency clause, as discussed in point 1 above, there seems to be some confusion about what an “AS IS” provision in a real estate contract means.</p>
<p>It has recently been suggested to me by Seller’s counsel that since the Buyer is purchasing property in “<em>AS IS”</em> condition that there is no need for the Buyer to have an inspection period with the right to inspect the condition of the property. To the contrary, where a Buyer has agreed to acquire property in <em>AS IS</em> condition, it is absolutely vital for the Buyer to have an opportunity to inspect the property, with the right to terminate the transaction if the condition of the property is materially worse than the Buyer expected. The <em>AS IS</em> provision in a real estate contract simply means that the Buyer does not expect the Seller to make any repairs to the property, or expect the Seller to provide closing credits for defective conditions in the property, and that the Buyer will not come back to the Buyer after closing seeking recourse for undisclosed defects.</p>
<p>Having a provision in an real estate contract providing for an inspection period during which the Buyer can thoroughly inspect the property and terminate the contract within that period if the property is physically deficient is not at all inconsistent with a provision that the Buyer is agreeing to acquire the property in <em>AS IS</em> condition. The need to inspect is a matter of due diligence for the Buyer. If the Buyer inspects the property (or fails to inspect the property) and does not exercise its right to terminate within the inspection period provided in the real estate contract, <em>then</em> the Buyer is bound to close regardless of the condition of the property – with the possible exception of additional damage occurring to the property after the contract date, or at least after expiration of the inspection period.</p>
<div class="wp-block-image">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="109" data-attachment-id="283" data-permalink="http://harp-onthis.com/about/rsp_logofull_2pms/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":""}" data-image-title="RSP_LogoFull_2PMS" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=963%2C350" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=300%2C109" alt="" class="wp-image-283" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=500%2C181 500w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></figure></div>
<p>These are simple points, but they are misunderstood more frequently than one would hope or expect. To avoid needless misunderstandings, careful and meticulous drafting is a solution. But still . . . this is not rocket science.</p>
<p>Thanks for listening. . .</p>
<p>Kymn</p>
]]></content:encoded>
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<item>
<title>COMMERCIAL REAL ESTATE BOOT CAMP</title>
<link>http://harp-onthis.com/commercial-real-estate-boot-camp/</link>
<comments>http://harp-onthis.com/commercial-real-estate-boot-camp/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Fri, 13 Apr 2018 20:35:15 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[Chicago]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[IICLE]]></category>
<category><![CDATA[Illinois]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1392</guid>
<description><![CDATA[NEW – COMMERCIAL REAL ESTATE BOOT CAMP- April 24, 2018- presented by the Illinois Institute for Continuing Legal Education I’m pleased to tell you about a terrific CLE program I’ll be speaking at and moderating: the IICLE® Commercial Real Estate Boot […]]]></description>
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<h2 class="wp-block-heading">NEW – COMMERCIAL REAL ESTATE BOOT CAMP- April 24, 2018- presented by the Illinois Institute for Continuing Legal Education</h2>
<div class="wp-block-image">
<figure class="alignleft"><a href="http://www.iicle.com/download/crebc18_brochure.pdf"><img data-recalc-dims="1" loading="lazy" decoding="async" width="60" height="77" data-attachment-id="740" data-permalink="http://harp-onthis.com/commercial-real-estate-boot-camp/image004/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image004.png?fit=60%2C77" data-orig-size="60,77" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":""}" data-image-title="image004" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image004.png?fit=60%2C77" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image004.png?fit=60%2C77" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image004.png?resize=60%2C77" alt="" class="wp-image-740"/></a></figure></div>
<p>I’m pleased to tell you about a terrific CLE program I’ll be speaking at and moderating: the <strong>IICLE® Commercial Real Estate Boot Camp</strong>, which will be held on <strong>Tuesday, April 24, 2018, at the One North Wacker Conference Center (UBS TOWER) in Chicago </strong>. A <strong>SPRINGFIELD SIMULCAST and LIVE WEBCAST</strong> will also be available.</p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" width="1000" height="667" data-attachment-id="1773" data-permalink="http://harp-onthis.com/commercial-real-estate-boot-camp/portraitofnewbusinessownersbyemptyofficewindow/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2017 Monkey Business Images\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Portrait,Of,New,Business,Owners,By,Empty,Office,Window","orientation":"0"}" data-image-title="Portrait,Of,New,Business,Owners,By,Empty,Office,Window" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?resize=1000%2C667" alt="portrait of new business owners by empty office window" class="wp-image-1773" style="width:400px;height:267px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/new-business-owners-by-empty-office-window.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 1000px) 100vw, 1000px" /></figure></div>
<p>This program is a “boot camp” for commercial real estate transactions, intended as intensive, fast-paced, basic training. The goal is to provide practical knowledge fundamental to everyday commercial real estate transactions practice, including basic forms. This course is designed for (i) lawyers with one to seven years of experience handling commercial real estate transactions; and (ii) lawyers at any level of experience seeking to learn the fundamentals of everyday commercial real estate transactions.</p>
<p>In this program you will learn about (a) client intake and engagement letters; (b) drafting/reviewing a letter of intent to purchase; (c) drafting the purchase and sale agreement; (d) obtaining and reviewing a suitable ALTA survey; (e) commercial title insurance with typically required commercial endorsements; (f) three common types of escrows; (g) types of deeds typical to commercial real estate transactions; (h) required governmental notices; (i) due diligence in preparing for closing; (j) documenting party authority; (k) the basic opinion of borrowers’ counsel; and (l) common closing issues.</p>
<p>You can view the full e-brochure here: <a href="http://www.iicle.com/download/crebc18_brochure.pdf" target="_blank" rel="noopener">PROGRAM BROCHURE</a></p>
<p>Check out the full agenda (the program provides 6 hours of CLE, including 1 hour of Professional Responsibility) and register now at http://www.iicle.com/crebc18 or call IICLE® at 800-252-8062.</p>
<p>As you may know, there is a shortage of commercial real estate attorneys with mid-level experience. Not because attorneys are not interested, but because during the commercial real estate crash that began with the collapse of Lehman Bros. on September 15, 2008, and the following <em>Great Recession </em>with its lingering effects on the commercial real estate market until just the past two or three years, there were few commercial real estate transactions upon which new attorneys could gain experience. Times have changed. Commercial real estate practice is booming. We need more attorneys who actually know what they’re doing. This Commercial Real Estate Boot Camp is a great start!</p>
<div class="wp-block-image size-medium wp-image-1145">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="" class="wp-image-1145" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p>I hope to see you on April 24th!</p>
<div class="wp-block-image">
<figure class="alignleft"><a href="http://www.iicle.com/download/crebc18_brochure.pdf"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="39" data-attachment-id="738" data-permalink="http://harp-onthis.com/commercial-real-estate-boot-camp/image002/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?fit=693%2C92" data-orig-size="693,92" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":""}" data-image-title="IICLE banner" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?fit=300%2C39" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?fit=693%2C92" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?resize=300%2C39" alt="" class="wp-image-738" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?resize=300%2C39 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?resize=500%2C66 500w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2014/04/image002.jpg?w=693 693w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">1392</post-id> </item>
<item>
<title>THE CLIENT CONUNDRUM</title>
<link>http://harp-onthis.com/the-client-conundrum/</link>
<comments>http://harp-onthis.com/the-client-conundrum/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 06 Nov 2017 18:55:30 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Asset Protection]]></category>
<category><![CDATA[Business]]></category>
<category><![CDATA[client]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[Illinois]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1376</guid>
<description><![CDATA[A mistake lawyers make is treating all clients the same. It’s a mistake shared by other professions as well. They’re not all the same. The issues clients face, and the solutions they deserve, are as varied as life itself. With […]]]></description>
<content:encoded><![CDATA[
<p>A mistake lawyers make is treating all clients the same. It’s a mistake shared by other professions as well. They’re not all the same. The issues clients face, and the solutions they deserve, are as varied as life itself.</p>
<div class="wp-block-image size-medium wp-image-1145">
<figure class="alignleft"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="" class="wp-image-1145" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p>With the rise of technology and the commoditization of legal services, nuance can be lost. Precise solutions to particular problems may be neglected while cookie-cutter boilerplate is offered as a cheap substitute. Not that all boilerplate and technology is bad – they can provide huge benefits when applied correctly. But just as a mass-produced size 9 leather dress shoe may be ideal for some, it is of little comfort or use to an athlete with a size 10 foot.</p>
<p>Automation is a cost-saver, no doubt. But is it a reasonable substitute for thoughtful analysis and tailor-made solutions to client specific problems?</p>
<p></p>
<p></p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1810" data-permalink="http://harp-onthis.com/the-client-conundrum/malematurecaucasianceobusinessmanleaderwithdiversecoworkersteam/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2022 Ground Picture\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Male,Mature,Caucasian,Ceo,Businessman,Leader,With,Diverse,Coworkers,Team,","orientation":"1"}" data-image-title="Male,Mature,Caucasian,Ceo,Businessman,Leader,With,Diverse,Coworkers,Team," data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?resize=400%2C267" alt="executive managers group at meeting" class="wp-image-1810" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/executive-managers-group-at-meeting.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>There may be areas of life where commoditized legal services represent a reasonable tradeoff. Perhaps consumers engaged in everyday transactions are adequately-served by inexpensive one-size fits all solutions. Even a consumer buying a home – often touted as the largest single transaction most consumers will make in their lifetime – may be well-served by inexpensive boilerplate solutions on most occasions. In the world of consumer transactions and consumer finance, there is a protective overlay of consumer protection laws and oversight that will often fill in the gaps left by a one-size fits all approach.</p>
<p>But what about most commercial transactions? Buying or starting a business? Investing in commercial or industrial real estate? Raising capital from third parties? Entering into a partnership agreement or limited liability company operating agreement for a commercial venture where someone else is in control, and uses or controls your money – or where you use or control someone else’s money? Are these circumstances where one-size solutions and documentation make sense?</p>
<p>How do you protect yourself if something goes wrong? Experience shows something can always go wrong. And when things go wrong in a commercial transaction, expensive lawsuits often follow.</p>
<p>Business people consider themselves to be intelligent, reasonable beings. When they invest in a business or real estate project they expect it will succeed. If they thought otherwise, they would not make the investment. That would be foolish, and they know for certain that they’re not foolish. If it fails, they conclude it had be someone’s fault – but it certainly wasn’t theirs. They must have been duped. Information must have been withheld. They must have been lied to or cheated. The other party must at least be incompetent if not downright crooked.</p>
<p>You may laugh, but that’s often how it happens. You may be one hundred percent competent and above-board. You may have understood and discussed the risks to the point where you are certain that your partners or investors understand the risks as well – but if you’re the promoter of the failed business or investment, or you’re in charge of making management decisions – you should expect to find yourself staring down the business end of a double-barreled lawsuit claiming the loss is your fault – even if you lost money as well, and even if nothing you did or could have done resulted in the loss. Changing economic circumstances, business and lifestyle trends, and other factors far beyond your control may be the reason for the loss, but you will be blamed. How do to protect yourself?</p>
<p>Suppose you’re on the other side. What if you’re the investor or partner asked to invest? What do you look for? What do you require? How do you protect yourself?</p>
<p>Clients are not all the same. Commercial transactions are not all the same. The risks and benefits of each investment and business venture are not all the same. The solutions and documentation of each transaction cannot, therefore, be all the same.</p>
<p>If clients are engaged in serious business, serious attention is required. Both the attorney and the client need to understand this. Once a deal goes bad, it’s too late to go back and redo what should have been done at the outset.</p>
<p>Will doing it right up front cost more?</p>
<p>Probably.</p>
<p>Will it be worth it if things go poorly?</p>
<p>You bet.</p>
<p>Should clients buy a size 9 shoe for their size 10 foot?</p>
<p><em>Thanks for listening. . .</em></p>
<p><em>Kymn </em></p>
]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">1376</post-id> </item>
<item>
<title>Outside Investors and the Real Estate PPM – A Critical Step</title>
<link>http://harp-onthis.com/outside-investors-and-the-real-estate-ppm-a-critical-step/</link>
<comments>http://harp-onthis.com/outside-investors-and-the-real-estate-ppm-a-critical-step/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 16 Feb 2017 23:16:05 +0000</pubDate>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[adaptive reuse]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[PPM]]></category>
<category><![CDATA[private placement memorandum]]></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=1352</guid>
<description><![CDATA[It is not uncommon for commercial real estate investors to pool their funds for real estate investments. To obtain project financing, equity requirements remain relatively high. Loan to value ratios are in the 60% to 70% range in many circumstances. […]]]></description>
<content:encoded><![CDATA[<div class="wp-block-image">
<figure class="alignleft"><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" /></figure></div>
<p>It is not uncommon for commercial real estate investors to pool their funds for real estate investments. To obtain project financing, equity requirements remain relatively high. Loan to value ratios are in the 60% to 70% range in many circumstances. Even a modestly priced commercial project with a $5,000,000 price tag may require equity in the range of $1,500,000 to $2,000,000. The greater the price tag, the higher the equity requirement. A Real Estate PPM is an important tool when raising funds from outside investors for a real estate project.</p>
<h2 class="wp-block-heading">TYPICAL INVESTMENT STRUCTURE</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="1782" data-permalink="http://harp-onthis.com/outside-investors-and-the-real-estate-ppm-a-critical-step/developers-and-engineers-discuss-future-of-the-major-real-estate-project/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/developers-and-engineers-discuss-future-of-the-major-real-estate-project.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="developers-and-engineers-discuss-future-of-the-major-real-estate-project" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/developers-and-engineers-discuss-future-of-the-major-real-estate-project.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/developers-and-engineers-discuss-future-of-the-major-real-estate-project.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/developers-and-engineers-discuss-future-of-the-major-real-estate-project.jpg?resize=400%2C267" alt="developers and engineers discuss future of the major real estate project" class="wp-image-1782" width="400" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/developers-and-engineers-discuss-future-of-the-major-real-estate-project.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/developers-and-engineers-discuss-future-of-the-major-real-estate-project.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/developers-and-engineers-discuss-future-of-the-major-real-estate-project.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 400px) 100vw, 400px" /></figure></div>
<p>Private real estate investments are typically structured through a manager-managed limited liability company (LLC), with the project promoter or its affiliate named as the manager. Oftentimes, the business terms of the transaction will include a cumulative preferred return to equity investors, an attractive internal rate of return to equity investors until all capital is returned, and a waterfall that provides for a disproportionate percentage of distributable cash to be used toward repayment of the equity investment until it is repaid in full, followed by a permanent allocation of profits and losses based on percentage of ownership.</p>
<h2 class="wp-block-heading">OUTSIDE INVESTORS – PROS AND CONS</h2>
<p>The advantage to the promoter in raising capital from outside investors is that it places the promoter in a position to acquire and control more and larger real estate projects. A disadvantage to promoters is that they must give up a meaningful piece of project ownership and anticipated profits in return for using other people’s money.</p>
<p> An advantage to outside investors is that they may realize high investment returns and certain tax advantages by participating in a real estate investment. A disadvantage is that they typically have little direct control over the project and must rely upon the knowledge, skill and efforts of the promoter to make money. Of course, if the outside investors don’t possess the knowledge and skill themselves, relying on an experienced real estate promoter may be their best bet for taking advantage of the opportunities real estate investment has to offer.</p>
<h2 class="wp-block-heading">DUE DILIGENCE AND THE REAL ESTATE PPM</h2>
<p>Whether investing in a stabilized real estate project, a project to be newly constructed, or a value-add project requiring redevelopment, renovation, or adaptive reuse, careful evaluation of the benefits and risks always require knowledgeable investigation using due diligence.</p>
<p>A good place for an outside investor to begin is by closely reading the investment PPM (private placement memorandum) which an outside investor should expect to receive from the promoter before making an investment. A well drafted Real Estate PPM will describe the project, the relevant history and experience of the promoter, sources of funds, uses of funds, material terms of the investment, including transfer restrictions, the exit strategy, and the identifiable risks of the investment and the project.</p>
<p>The Real Estate PPM, however, is only the beginning. A conscientious investor needs to go beyond the statements in the PPM to gain an understanding of the underlying real estate project itself, not unlike a conscientious lender would – but even more so, since the interest of an equity investor is subordinate to the interest of any secured lenders. If the prospective investor does not have the direct knowledge and expertise to evaluate and understand the underlying real estate project, it is highly advisable for the prospective investor to hire an advisor, attorney or consultant who has the skill-set to conduct the evaluation.</p>
<h2 class="wp-block-heading">PPM – A DEFENSE DOCUMENT</h2>
<p>Promoters sometimes resist preparing a fully developed PPM because they believe (naively) that it is an unnecessary burden and needless expense. Realistically, however, it is essential and its cost is a cost of raising money from outside investors.</p>
<p>Some promoters discount the value of a carefully prepared PPM because they think of it as a marketing brochure. With that belief, they conclude that their investors don’t need an expensive marketing brochure prepared by a lawyer. In truth, a PPM is not a marketing brochure. It is a critical defense document. Like insurance, it is only a <em>waste of money</em> if you never need it. Even the most well thought-out real estate project may not turn out as planned, or may not result in the impressive profits anticipated at the outset. In that case, <em>believe it or not</em>, there is a meaningful risk that the investors will sue – especially if they end up losing money.</p>
<p>Anytime a person is making a passive investment with the expectation that profits will be derived solely through the efforts of another, the investment is, by definition, an <em>investment contract</em> and, by extension, a <em>security</em>. The party offering the security is required by law to make a whole host of disclosures to make sure the investor is fully informed of all material facts and risks. Failure to adequately describe the investment and disclose known and foreseeable risks exposes the promoter to serious potential liability under applicable securities laws and regulations.</p>
<p>When the investors sue, it will be for on a variety of theories, including breach of contract, fraud in the inducement, common law fraud, negligent misrepresentation, and violation of applicable securities laws. The investors will allege that the promoter made all kinds of promises and told the investor all kinds of things regarding the project and the investment, which the promoter knew, or should have known, were false. The investor will also claim the promoter concealed or failed to disclose facts and risks known to the promoter which, if disclosed, would have caused the investors to decline making the investment. Since securities laws provide investment rescission rights and impose near strict liability on a broad range of promoters and persons controlling the investment, the promoter and its principal advocates can be exposed to significant personal liability absent an effective and reliable defense.</p>
<p>A well-crafted PPM can be highly effective in providing a strong defense by spelling out, in writing, all the material details and assumptions of the project and the investment, and all known and foreseeable risks inherent in the project and the investment. It will also limit the right of the investors to rely upon only the matters expressed in the PPM, and will clarify the distinction between statements of fact, and forward looking projections which constitute matters of opinion or belief which cannot reasonably be relied upon. As such, the Real Estate PPM is a powerful defense tool that no real estate promoter seeking investment from outsiders should go without. If things go poorly, it will be the firewall between the investors’ loss and the personal liability of the promoter.</p>
<h2 class="wp-block-heading">INVESTOR RELIANCE ON PPM</h2>
<p>From the investors’ perspective, the PPM is a valuable tool as well. If meticulously crafted, it will disclose the material details of the project and the investment, and will point out risks the investor should consider, even if they are risks the investor is willing to accept. The investor will have the right to rely upon the facts and details set forth in the PPM unless expressly qualified or limited. If the PPM misstates the facts or omits to disclose known or knowable risks, the PPM can serve as a powerful piece of evidence in a claim against the promoter. It is precisely this evidentiary risk that impels promoters to dot the <em>i</em>’s and cross the <em>t</em>’s to make sure the PPM is complete and accurate – which makes it a valuable source of information for the prospective investor.</p>
<h2 class="wp-block-heading">PROJECT DUE DILIGENCE BY INVESTOR</h2>
<p>Even with the inclusion of necessary facts and disclosures in the Real Estate PPM, a detailed analysis and discussion of certain real estate fundamentals underlying the project may not fall within the purview of the PPM. If the disclosed risks are carefully crafted with broad language, in may be up to the prospective investor, in the exercise of due diligence, to evaluate the underlying project to confirm the suitability of the property for its envisioned use.</p>
<p>Due diligence by the investor is always appropriate. If the prospective investor does not have the knowledge on its own to understand real estate fundamentals, it is incumbent upon the investor to engage a real estate professional who possesses the necessary knowledge. Regardless of whether a failure to adequately disclose and address gaps in the underlying project fundamentals is sufficient to expose the promoter to liability, imposing liability on the promoter is not the object of the investment. The object of the investment is to put the investor’s money to work in a profitable venture that will yield a favorable return – not a lawsuit.</p>
<p class="has-text-align-center">* * *</p>
<p>Whether raising money from outside investors, or considering an investment in a real estate project as a passive outside investor, a well-crafted Real Estate PPM is a vital component and critical step. Ignore it at your own peril.</p>
<p>Thanks for listening,</p>
<p>Kymn</p>
]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">1352</post-id> </item>
<item>
<title>NEW BOOK – Illinois Commercial Real Estate</title>
<link>http://harp-onthis.com/1338-2/</link>
<comments>http://harp-onthis.com/1338-2/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 17 Oct 2016 14:41:53 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[adaptive reuse]]></category>
<category><![CDATA[asset protection]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[Chicago]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[lenders]]></category>
<category><![CDATA[lending]]></category>
<category><![CDATA[loan documentation]]></category>
<category><![CDATA[project entitlement]]></category>
<category><![CDATA[public-private partnership]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[site entitlement]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[urban infill]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1338</guid>
<description><![CDATA[I’m happy to announce that the website for my new book, Illinois Commercial Real Estate is now live. Visit www.Illinois-CRE.com for a book excerpt. Illinois Commercial Real Estate, Due Diligence to Closing, with Checklists, is intended as a practical handbook […]]]></description>
<content:encoded><![CDATA[<p>I’m happy to announce that the website for my new book, <strong><em>Illinois Commercial Real Estate</em></strong> is now live. Visit www.Illinois-CRE.com for a book excerpt.</p>
<p><a href="http://www.Illinois-CRE.com"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1331" data-permalink="http://harp-onthis.com/illinois-commercial-real-estate-book-cover/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?fit=734%2C1087" data-orig-size="734,1087" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="illinois-commercial-real-estate-book-cover" data-image-description="" data-image-caption="<p>www.illinois-cre.com</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?fit=203%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?fit=691%2C1024" class="alignleft size-medium wp-image-1331" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?resize=203%2C300" alt="illinois-commercial-real-estate-book-cover" width="203" height="300" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?resize=203%2C300 203w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?resize=691%2C1024 691w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2016/10/Illinois-Commercial-Real-Estate-Book-Cover.jpg?w=734 734w" sizes="auto, (max-width: 203px) 100vw, 203px" /></a><strong><em>Illinois Commercial Real Estate, Due Diligence to Closing, with Checklists</em></strong>, is intended as a practical handbook for investors, developers, brokers, lenders, attorneys and others interested in commercial real estate projects in Illinois. This book zeros-in on commercial real estate due diligence, and walks the reader through the due diligence process, from conception to closing, with a focus on making sure the commercial real estate project functions as intended after closing. Checklists are provided as an aid to commercial real estate professionals to assist on evaluation of the property and the transaction on the path toward successful closing. As people in the real estate industry understand, if the deal doesn’t close, it doesn’t count.</p>
<p>I’d like to extend <strong>Special Thanks</strong> to:</p>
<p>My <em>clients</em>, whose passion for creative commercial development I share;</p>
<p>My<em> partners and staff</em> at <a href="http://www.rsplaw.com">Robbins, Salomon and Patt, Ltd.,</a> who work with me tirelessly to earn our client’s business every day.</p>
<p><a href="http://www.rsplaw.com/catherine-cooke/">Catherine A. Cooke</a> and<a href="http://www.rsplaw.com/emily-c-kaminski/"> Emily C. Kaminski,</a> attorneys at Robbins, Salomon & Patt, Ltd. who provided legal research, advice, counseling, and technical editing;</p>
<p><a href="http://www.rsplaw.com/james-mainzer/">James M. Mainzer</a>, tax partner at Robbins, Salomon & Patt, Ltd., for his insights and assistance on tax matters;</p>
<p>The editing staff at the<a href="http://www.iicle.com/"><em> Illinois Institute for Continuing Legal Education</em></a>, for editing early versions of chapters 11, 12, 25, 27 and 28, which were first published in <a href="http://www.iicle.com/">IICLE</a> Practice Handbooks;</p>
<p>Dale V. Weaver, Illinois licensed surveyor, who was kind enough to convert my rough draft drawings into the diagrams included at chapter 25;</p>
<p>. . . and, of course, my friend and valuable resource, Linda Day Harrison, founder of <a href="http://thebrokerlist.com/">theBrokerList</a>, for her ongoing encouragement and support.</p>
<p>If you are buying, developing, financing, selling, leasing or otherwise dealing with commercial real estate in Illinois, I hope you will find <strong><em>Illinois Commercial Real Estate, Due Diligence to Closing, with Checklists</em></strong><em> </em>to be a useful resource.</p>
<p>ENJOY!!!</p>
<p>R. Kymn Harp</p>
<p><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1041" data-permalink="http://harp-onthis.com/illinois-llcs-the-asset-protection-advantage/rsp_logohd-3/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"}" data-image-title="RSP_LogoHD (3)" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" class="alignleft size-medium wp-image-1041" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109" alt="RSP_LogoHD (3)" width="300" height="109" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></p>
]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">1338</post-id> </item>
<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>
<item>
<title>NEW: ALTA Land Title Survey Standards</title>
<link>http://harp-onthis.com/new-alta-land-title-survey-standards/</link>
<comments>http://harp-onthis.com/new-alta-land-title-survey-standards/#respond</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 21 Jan 2016 00:06:26 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[how to close]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=1259</guid>
<description><![CDATA[NEW ALTA LAND TITLE SURVEY STANDARDS effective February 23, 2016. UPDATE:  Effective February 23, 2016, new minimum standard detail requirements for ALTA Land Title Surveys went into effect, replacing the previously existing 2011 Minimum Standard Detail Requirements for ALTA/ACSM Land […]]]></description>
<content:encoded><![CDATA[
<h1 class="wp-block-heading"><span style="color: #2492ab;">NEW ALTA LAND TITLE SURVEY STANDARDS effective February 23, 2016.</span></h1>
<p>UPDATE: Effective February 23, 2016, new minimum standard detail requirements for ALTA Land Title Surveys went into effect, replacing the previously existing 2011 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys.</p>
<p>Note that the National Society of Professional Surveyors (NSPS) is the legal successor organization to the American Congress of Surveying and Mapping (ACSM). Accordingly, the new survey standards will be cited as the “<em>2016 Minimum Standard Detail requirements for ALTA/NSPS Land Title Surveys.</em>“</p>
<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" width="1000" height="667" data-attachment-id="1940" data-permalink="http://harp-onthis.com/new-alta-land-title-survey-standards/surveyorengineerwithpartnermakingmeasureonthefield/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2012 Tom Wang\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Surveyor,Engineer,With,Partner,Making,Measure,On,The,Field","orientation":"0"}" data-image-title="Surveyor,Engineer,With,Partner,Making,Measure,On,The,Field" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?resize=1000%2C667" alt="surveyor engineer with partner making measure on the field" class="wp-image-1940" style="width:400px;height:267px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/04/surveyor-engineer-with-partner-making-measure-on-the-field.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 1000px) 100vw, 1000px" /></figure></div>
<p>Several substantive changes have been made in the updated 2016 land title survey standards. A comparison of the 2016 standards to the previous 2011 standards is highlighted on the Red-lined version showing the changes made. Among the notable changes are changes to the <span style="text-decoration: underline;">Table A</span> list of <em>Optional Survey Responsibilities and Specifications. </em>The modifications to <span style="text-decoration: underline;">Table A</span> are largely a result of the 2016 Land Title Survey standards making certain requirements mandatory instead of optional. Additional changes involve reassigned responsibilities (or at least a clarification of responsibilities) for obtaining certain information for use by surveyors in preparing a 2016 ALTA/NSPS Land Title Survey.</p>
<h2 class="wp-block-heading"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1041" data-permalink="http://harp-onthis.com/illinois-llcs-the-asset-protection-advantage/rsp_logohd-3/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"1"}" data-image-title="RSP_LogoHD (3)" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?fit=963%2C350" class="alignleft size-medium wp-image-1041" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109" alt="RSP_LogoHD (3)" width="300" height="109" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/02/RSP_LogoHD-3.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /><span style="color: #2492ab;">Update Purchase Agreements to Require Surveys compliant with NEW 2016 ALTA Land Title Survey Standards</span></h2>
<p>Especially for commercial or industrial real estate purchase agreements (and financing commitments) requiring ALTA Surveys prepared after February 23, 2016, be sure to contractually require that they be prepared in accordance the the 2016 Minimum Standard Detail requirements for ALTA/NSPS Land Title Surveys. Be sure, also, to modify your existing contracts as they pertain to the <em><span style="text-decoration: underline;">Table A</span> Optional Survey Responsibilities and Specifications</em> to address the new <span style="text-decoration: underline;">Table A</span> instead of the version associated with the former 2011 standards.</p>
<p>Purchasers should check with their lenders, and with the title insurance company engaged to insure title, to be certain everyone is on the same page, and that all parties understand their respective responsibilities for obtaining documents and information necessary for use by the Surveyor. Lenders and their counsel should do likewise.</p>
<p>2016 should be an interesting year for commercial real estate. Best of luck for a prosperous year!</p>
<p>Thanks,</p>
<p>Kymn</p>
]]></content:encoded>
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<post-id xmlns="com-wordpress:feed-additions:1">1259</post-id> </item>
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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>
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<h1 class="has-text-align-center wp-block-heading">KEYS TO CLOSING</h1>
<h2 class="wp-block-heading">1. HAVE A PLAN:</h2>
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<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>COMMERCIAL LANDLORD-TENANT – Part 2 – The Covenant of Quiet Enjoyment</title>
<link>http://harp-onthis.com/commercial-landlord-tenant-part-2-the-covenant-of-quiet-enjoyment/</link>
<comments>http://harp-onthis.com/commercial-landlord-tenant-part-2-the-covenant-of-quiet-enjoyment/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Mon, 23 Mar 2015 11:00:24 +0000</pubDate>
<category><![CDATA[Business]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[Landlord-Tenant]]></category>
<category><![CDATA[White Papers]]></category>
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<category><![CDATA[adaptive reuse]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial landlord tenant]]></category>
<category><![CDATA[commercial lease]]></category>
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<category><![CDATA[commercial tenant rights]]></category>
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<category><![CDATA[enforcement actions]]></category>
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<category><![CDATA[keys to closing]]></category>
<category><![CDATA[purchase]]></category>
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<description><![CDATA[This is Part 2 of a multi-part series of articles discussing the duties, rights and remedies of commercial real estate tenants in Illinois. Part 1, entitled “Getting It Right” discussed the importance of clarity in lease drafting, and the potential […]]]></description>
<content:encoded><![CDATA[
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p></p>
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<div class="wp-block-image">
<figure class="alignleft is-resized"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="R. Kymn Harp Robbins, Salomon & Patt, Ltd." class="wp-image-1145" style="width:175px;height:245px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /></a><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="175" height="245" data-attachment-id="1051" data-permalink="http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/catherine-cooke-shareholder-at-rsp/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" data-orig-size="175,245" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D7000","caption":"","created_timestamp":"1367319064","copyright":"","focal_length":"98","iso":"125","shutter_speed":"0.008","title":"","orientation":"1"}" data-image-title="Catherine Cooke" data-image-description="" data-image-caption="<p>Catherine Cooke<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?resize=175%2C245" alt="Catherine Cook Shareholder at Robbins, Salomon & Patt, Ltd." class="wp-image-1051"/></a><figcaption class="wp-element-caption">Catherine A. Cooke<br /> Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p><em>This is Part 2 of a multi-part series of articles discussing the duties, rights and remedies of commercial real estate tenants in Illinois. <a title="Commercial Landlord-Tenant Issues – PART 1 – Getting it Right" href="http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/" target="_blank" rel="noopener">Part 1, entitled “Getting It Right”</a> discussed the importance of clarity in lease drafting, and the potential for unintended leasehold easements for parking, and other uses.</em></p>
<p><em>In March 2015, the Illinois Institute for Continuing Legal Education (“IICLE”) published its 2015 Edition practice handbook entitled: Commercial Landlord-Tenant Practice. To provide best-practice guidance to all Illinois attorneys, IICLE recruits experienced attorneys with relevant knowledge to write each handbook chapter. For the 2015 Edition, IICLE asked R. Kymn Harp and Catherine A. Cooke to write the chapter entitled Tenant’s Duties, Rights and Remedies. We were, of course, pleased to oblige. Although each of us represent commercial landlords at least as often as we represent commercial tenants, a clear understanding of the duties, rights and remedies of commercial real estate tenants is critical when representing either side of the commercial lease transaction. </em></p>
<p><em>The following is an excerpt (slightly edited) from our chapter in the 2015 Edition. We hope you find this excerpt, and the excerpts that will follow, informative and useful. Feel free to contact IICLE directly to purchase the entire volume.</em></p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">The COVENANT OF QUIET ENJOYMENT </span><br /><span style="color: #1897ab;">What Is It? — General Principles</span></h2>
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<figure class="alignright size-full is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" width="1000" height="667" data-attachment-id="1836" data-permalink="http://harp-onthis.com/commercial-landlord-tenant-part-2-the-covenant-of-quiet-enjoyment/sweetidleness-lazyyounghispanicladysitinrelaxedpose/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?fit=1000%2C667" data-orig-size="1000,667" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2022 fizkes\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Sweet,Idleness.,Lazy,Young,Hispanic,Lady,Sit,In,Relaxed,Pose","orientation":"1"}" data-image-title="Sweet,Idleness.,Lazy,Young,Hispanic,Lady,Sit,In,Relaxed,Pose" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?fit=1000%2C667" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?resize=1000%2C667" alt="successful female new flat apartment buyer rest at home feel pleasure" class="wp-image-1836" style="width:400px;height:267px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?w=1000 1000w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/successful-female-new-flat-apartment-buyer-rest-at-home-feel-pleasure.jpg?resize=768%2C512 768w" sizes="auto, (max-width: 1000px) 100vw, 1000px" /></figure></div>
<p>It has long been the law in Illinois that a covenant of quite enjoyment is implied in all lease agreements. <em>Blue Cross Ass’n v. 666 N. Lake Shore Drive Associates</em>, 100 Ill.App.3d 647, 427 N.E.2d 270, 273, 56 Ill.Dec. 290 (1st Dist. 1981); <em>64 East Walton, Inc. v. Chicago Title & Trust Co</em>., 69 Ill.App.3d 635, 387 N.E.2d 751, 755, 25 Ill.Dec. 875 (1st Dist. 1979); <em>Berrington v. Casey</em>, 78 Ill. 317, 319 (1875); <em>Wade v. Halligan</em>, 16 Ill. 507, 511 (1855).</p>
<p>A covenant of quiet enjoyment “promises that the tenant shall enjoy the possession of the premises in peace and without disturbance.” [Emphasis in original.] <em>Checkers, Simon & Rosner v. Lurie Co</em>., No. 87 C 5405, 1987 WL 18930 at *3 (N.D.Ill. Oct. 20, 1987). This does not mean, however, that no breach of the covenant of quiet enjoyment may be found in a leasehold without a finding that the lessor intended to deprive the lessee of possession. <em>Blue Cross Ass’n, supra</em>, 427 N.E.2d at 27. It simply means that a tenant must actually be in possession of the premises to claim a breach of the covenant of quiet enjoyment. If the tenant has already vacated the premises before the disturbance has commenced, no breach of the covenant of quiet enjoyment occurs. <em>Checkers, Simon & Rosner, supra</em>, 1987 WL 18930 at *3.</p>
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<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>An implied covenant of quiet enjoyment includes, “absent a lease clause to the contrary, the right to be free of the lessors’ intentional interference with full enjoyment and use of the leased premises.” <em>Infinity Broadcasting Corporation of Illinois v. Prudential Insurance Company of America</em>, No. 86 C 4207, 1987 WL 6624 at *5 (N.D.Ill. Feb. 9, 1987), aff’d, 869 F.2d 1073 (7th Cir. 1989), quoting <em>American Dairy Queen Corp. v. Brown-Port Co</em>., 621 F.2d 255, 258 (7th Cir. 1980).</p>
<p>If the landlord breaches the covenant of quiet enjoyment, the lessee may remain in possession and claim damages for breach of lease. In such case, the measure of damages is the difference between the rental value of the premises in light of the breached covenant of quiet enjoyment and the rent that the tenant agreed to pay under the lease, together with such special damages as may have been directly and necessarily incurred by the tenant in consequence of the landlord’s wrongful act. <em>64 East Walton, supra</em>, 387 N.E.2d at 755.</p>
<p>Although Illinois cases defining the precise scope of a covenant of quiet enjoyment are rare, BLACK’S LAW DICTIONARY, pp. 1248 – 1249 (6th ed. 1993) defines “quiet enjoyment” in connection with the landlord-tenant relationship as “the tenant’s right to freedom from serious interferences with his or her tenancy. <em>Manzaro v. McCann</em>, 401 Mass. 880, 519 N.E.2d 1337, 1341. (Ringing for more than one day of smoke alarms in an apartment building could be sufficient interference with the tenants’ quite enjoyment of leased premises to justify relief against the landlord.).”</p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">HOW THE COVENANT OF QUIET ENJOYMENT MAY APPLY— CASE LAW</span></h2>
<p>In <em>Blue Cross Ass’n v. 666 N. Lake Shore Drive Associates</em>, 100 Ill.App.3d 647, 427 N.E.2d 270, 273, 56 Ill.Dec. 290 (1st Dist. 1981), the First District Appellate Court discussed the covenant of quiet enjoyment in the lease as granting the tenant a right of quiet and peaceful possession and enjoyment of the whole premises and equated a breach of quiet enjoyment under a lease to a private nuisance. “A private nuisance in a leasehold situation is ‘an individual wrong arising from an unreasonable, unwarranted or unlawful use of one’s property producing such material annoyance, inconvenience, discomfort, or hurt that the law will presume a consequent damage.’ ” Id., quoting <em>Great Atlantic & Pacific Tea Co. v. LaSalle National Bank</em>, 77 Ill.App.3d 478, 395 N.E.2d 1193, 1198, 32 Ill.Dec. 812 (1st Dist. 1979).</p>
<p>The tenant had entered into a five-year lease on August 22, 1978, with a five-year renewal option, for approximately 53,000 square feet of the </p>
<span id="more-1065"></span>
<p>15th floor of the building located at 666 North Lake Shore Drive in Chicago. The lease stated that the premises were to be used for computer installation and general office space, and the tenant expended in excess of $2,000,000 in leasehold improvements, installed approximately $6,000,000 in computer equipment, and was fully operational in August 1980.</p>
<p>In April 1979, the building was purchased by a new owner for the purpose of converting it to a mixed-use residential, commercial, and office facility. In August 1979, the new owner advised the tenant that the renovation program required alternations in the plaintiff’s leasehold in the form of physical penetrations for installation of plumbing, ventilation, and electrical risers to service the condominium and office areas on floors above and below the tenant’s leased premises. The tenant refused to permit penetrations into the plaintiff’s leased space. Notwithstanding the tenant’s refusal, the landlord proceeded with construction and penetrated the tenant’s space for installation of the risers in accordance with the landlord’s renovation plans. The tenant sued to obtain a preliminary injunction, but the trial court declined to issue injunctive relief. The tenant appealed.</p>
<p>On appeal, the appellate court reversed the trial court, stating: “Paragraph 42A of the lease expressly grants (tenant) the right of quiet and peaceful possession and enjoyment. The meaning of this clause is not controverted. (Tenant) had a right to seek injunctive relief for its breach when the conduct of (landlord) substantially interfered with (tenants’) use and enjoyment of the premises.” 427 N.E.2d at 273.</p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">PRIVATE NUISANCE DISTINGUISHED</span></h2>
<p>Similar to breach of the covenant of quiet enjoyment is the tort of maintaining a nuisance. In <em>Great Atlantic & Pacific Tea Co. v. LaSalle National Bank</em>, 77 Ill.App.3d 478, 395 N.E.2d 1193, 1198, 32 Ill.Dec. 81 (1st Dist. 1979), the First District Appellate Court stated:</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p>A private nuisance is a nontrespassory invasion of another’s interest in the private use and enjoyment of land. . . . It is an individual wrong arising from an unreasonable, unwarranted or unlawful use of one’s property producing such material annoyance, inconvenience, discomfort, or hurt that the law will presume consequent damage. . . . What is an unreasonable use of one’s property under the circumstances, is determined by weighing the following factors:</p>
<p>(a) The extent of the harm involved;</p>
<p>(b) the character of the harm involved;</p>
<p>(c) the social value that the law attaches to the type of use or enjoyment invaded;</p>
<p>(d) the suitability of the particular use or enjoyment invaded to the character of the locality; and</p>
<p>(e) the burden on the person harmed or avoiding the harm.</p>
<p>. . . The weight that each factor is accorded is relative to the circumstances of the case.” [Citations omitted.]
</blockquote>
<h2 class="wp-block-heading"><span style="color: #1897ab;">SCOPE OF INVASION</span></h2>
<p>Although <em>Blue Cross Ass’n, supra</em>, involved a physical invasion of the tenant’s space, physical invasion is not necessarily required. A tenant has a right to the full use and enjoyment of the leased premises without the landlord’s intentional interference, absent a lease clause to the contrary. Infinity Broadcasting, supra. By equating a breach of the covenant of quiet enjoyment to a private nuisance, the Illinois Appellate Court, in <em>Blue Cross Ass’n, supra</em>, inferred that the breach could be a nontrespassory invasion into the tenant’s leased premises.</p>
<p><span style="color: #1897ab;"><strong>Query:</strong></span> Do the following activities by a landlord constitute a breach of the covenant of quiet enjoyment, absent an express lease clause permitting these activities, if the activities cause material annoyance, inconvenience, discomfort or hurt to the commercial tenant?</p>
<p><strong><span style="color: #1897ab;">√</span></strong> Loud construction on adjacent or nearby premises during normal business hours?</p>
<p><strong><span style="color: #1897ab;">√</span></strong> Prolonged disruption of elevator service or other access to the premises during normal business hours?</p>
<p><strong><span style="color: #1897ab;">√</span></strong> Failure to maintain working HVAC suitable to the tenant’s commercially reasonable use of the leased premises?</p>
<p><span style="color: #1897ab;"> </span><strong><span style="color: #1897ab;">PRACTICE POINTER</span></strong></p>
<p><span style="color: #1897ab;">A landlord in a multi-tenant building would be wise to include as part of the landlord’s “standard boilerplate” provisions, a modified covenant of quiet enjoyment granting landlord the right to reasonably penetrate the leased premises as necessary, appropriate or convenient to install and maintain plumbing, electrical, telecommunications, fire suppression, HVAC and other components and systems as determined by landlord, in landlord’s sole discretion, to be necessary, useful or convenient to the preparation, use and/or occupancy of other portions of the building, and to conduct construction activities in adjacent or nearby premises, and to temporarily modify the means and/or configuration of access to the premises for safety or convenience, so long as such activities do not unreasonably interfere with commercially reasonable use of the leased premises by tenant for the purposes for which the premises are leased. If the landlord fails to include such a provision, the tenant may have to right to stop landlord’s work.</span></p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">LIGHT AND AIR</span></h2>
<p>The covenant of quiet enjoyment does not guarantee a tenant a right to unobstructed light and air. In <em>Keating v. Springer</em>, 146 Ill. 481, 34 N.E. 805, 807 (1893), the Illinois Supreme Court held that “a landlord will not be liable for obstructing his tenant’s windows by building on an adjacent [lot], in the absence of any covenant or agreement in the lease forbidding him to do so.”</p>
<p>Similarly, in <em>Baird v. Hanna</em>, 328 Ill. 436, 159 N.E. 793, 794 (1927), the Illinois Supreme Court held that “the simplest rule, and that best suited to a country like the United States, in which changes are continually taking place in the ownership and in the use of lands, is that no easement of light can be acquired without the express grant of an interest in, or covenant relating to, the lands over which the right is claimed.”</p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">TELEVISION AND RADIO SIGNALS</span></h2>
<p>A claimed right to unobstructed transmission of television and radio signals has been held to the same standard and analysis as a claimed right to unobstructed light and air. While not actually a landlord-tenant case, <em>People ex rel. Hoogasian v. Sears, Roebuck & Co</em>., 52 Ill.2d 301, 287 N.E.2d 677 (1972), is instructive in its clarification that claimed easements for television and radio signals will be governed by the same analysis as claimed easements for light and air.</p>
<p>In <em>Hoogasian</em>, certain villages in the Chicago area sued to enjoin Sears from constructing the high-rise office building that became known as “Sears Tower” (now Willis Tower), contending that the tower would distort television reception and depress real estate values, and therefore constitute a nuisance. The Illinois Supreme Court upheld dismissal of the case, determining that the same standard applicable to light and air applies to television and radio signals, and applied the general rule that a landowner has no legal right to the free flow of light and air across the adjoining land of his or her neighbor. See also <em>Infinity Broadcasting Corporation of Illinois v. Prudential Insurance Company of America</em>, No. 86 C 4207, 1987 WL 6624 at *5 (N.D.Ill. Feb. 9, 1987), aff’d, 869 F.2d 1073 (7th Cir. 1989).</p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">DAMAGES FOR BREACH OF THE COVENANT OF QUIET ENJOYMENT</span></h2>
<p>In <em>64 East Walton, Inc. v. Chicago Title & Trust Co</em>., 69 Ill.App.3d 635, 387 N.E.2d 751, 25 Ill.Dec. 875 (1st Dist. 1979), the landlord did not contest that there was a breach of the covenant of quiet enjoyment but did contest the amount of damages awarded. In analyzing the scope of damages a tenant could recover for breach of the covenant of quiet enjoyment, the court stated:</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<p>The relevant law, although by no means plentiful, is clear. A covenant of quiet enjoyment is implied in all lease agreements. . . . If the lessor breaches the covenant, the lessee may remain in possession and thus be liable for rent but still maintain an action for damages. . . . The measure of damages in such a case is the difference between the rental value of the premises involved and the rent which the lessee has agreed to pay, together with such special damages as may have directly and necessarily occasioned to the lessee by the lessor’s wrongful act. . . . Thus, we must examine the wrongful acts of defendant and determine whether they directly and necessarily occasioned the damages awarded, keeping in mind that a trial court’s assessment of damages will be set aside only if it is manifestly erroneous. (Citations omitted.) 387 N.E.2d at 755.</p>
</blockquote>
<p><strong><span style="color: #1897ab;">PRACTICE POINTER</span></strong></p>
<p><span style="color: #1897ab;">Generally speaking, a breach of a covenant of quiet enjoyment is a breach of a contractual covenant contained (or implied) in a lease, constituting a cause of action against a landlord. If the “material annoyance, inconvenience, discomfort, or hurt” is caused by a nearby property owner or cotenant, the proper cause of action against such adjacent property owner or cotenant is likely “maintaining a private nuisance” rather than a breach of any covenant of quiet enjoyment, since, under those circumstances, there is no privity of contract through which a “covenant” of any sort might arise.</span></p>
<h2 class="wp-block-heading"><span style="color: #1897ab;">LESSON LEARNED</span></h2>
<p>The covenant of quiet enjoyment, while implied in all leases, is a covenant often expressly stated in the so-called “standard boilerplate” provisions of a commercial lease. As a contract covenant, it can be modified and adapted to the needs of the landlord and tenant by appropriate and careful drafting. Had the landlord in Blue Cross Ass’n, supra, included in the lease appropriate language granting it the right to enter upon and penetrate the tenant’s space for the purpose of installing plumbing, ventilation and electrical risers as determined by landlord to be reasonably necessary for the build-out and use of other portions of the building, no breach of the covenant of quiet enjoyment would have likely occurred. As noted by the court, a breach of the covenant of quiet enjoyment requires an intentional interference with a tenant’s full enjoyment and use of the leased premises which interference is unreasonable, unwarranted or unlawful. If the lease had included a suitable clause or provision expressly permitting the landlord to penetrate a portion of the leased space to install plumbing, ventilation, electrical risers and other systems to serve other portions of the building, no breach of the covenant of quiet enjoyment would have occurred.</p>
<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
<h2 class="wp-block-heading"><span style="color: #1897ab;">AUTHOR’S NOTE</span></h2>
<p>If you are a property owner/developer planning to reconfigure a multi-tenant commercial property, or planning an adaptive reuse of commercial property encumbered with existing leases, proper due diligence requires a close examination of existing leases to confirm your rights to implement your development plan. If there is a risk of violating the covenant of quiet enjoyment, a strategy to mitigate that risk should be developed as part of the overall development plan. Otherwise, you may find yourself unable to proceed with your development plan, as existing commercial tenants enjoin implementation to your potential extreme financial detriment.</p>
</blockquote>
<p><em>Thanks for listening,</em><br /><em>R. Kymn Harp and Catherine A. Cooke</em></p>
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<h3 class="wp-block-heading"><span style="color: #1897ab;"><em>COMING UP . . .</em></span></h3>
<p>In Part 3 of this series, we will discuss <span style="color: #1897ab;"><em><strong>Constructive Eviction</strong></em></span>—including the rights and remedies available to a commercial tenant who is constructively evicted by its landlord.</p>
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<title>Commercial Landlord-Tenant Issues – PART 1 – Getting it Right</title>
<link>http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/</link>
<comments>http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 12 Mar 2015 22:37:49 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[Landlord-Tenant]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[commercial landlord]]></category>
<category><![CDATA[commercial landlord tenant]]></category>
<category><![CDATA[commercial leases]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[commercial tenants]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[development]]></category>
<category><![CDATA[enforcement actions]]></category>
<category><![CDATA[industrial property]]></category>
<category><![CDATA[lease rights]]></category>
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<category><![CDATA[rights to parking]]></category>
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<description><![CDATA[In March 2015, the Illinois Institute for Continuing Legal Education (“IICLE”) published its 2015 Edition practice handbook entitled: Commercial Landlord-Tenant Practice. To provide best-practice guidance to all Illinois attorneys, IICLE recruits experienced attorneys with relevant knowledge to write each handbook […]]]></description>
<content:encoded><![CDATA[<div class="wp-block-image">
<figure class="alignleft is-resized"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="199" height="300" data-attachment-id="1145" data-permalink="http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions-3/harp-3_17_15-019/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=2848%2C4288" data-orig-size="2848,4288" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D300","caption":"","created_timestamp":"1426589698","copyright":"","focal_length":"52","iso":"200","shutter_speed":"0.008","title":"","orientation":"0"}" data-image-title="Harp 3_17_15-019" data-image-description="" data-image-caption="<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=199%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?fit=680%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300" alt="R. Kymn Harp Robbins, Salomon & Patt, Ltd." class="wp-image-1145" style="width:175px;height:245px" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=199%2C300 199w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?resize=680%2C1024 680w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/04/Harp-3_17_15-019.jpg?w=2000 2000w" sizes="auto, (max-width: 199px) 100vw, 199px" /></a><figcaption class="wp-element-caption">R. Kymn Harp<br />Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="175" height="245" data-attachment-id="1051" data-permalink="http://harp-onthis.com/commercial-landlord-tenant-issues-part-1-getting-it-right/catherine-cooke-shareholder-at-rsp/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" data-orig-size="175,245" data-comments-opened="1" data-image-meta="{"aperture":"9","credit":"","camera":"NIKON D7000","caption":"","created_timestamp":"1367319064","copyright":"","focal_length":"98","iso":"125","shutter_speed":"0.008","title":"","orientation":"1"}" data-image-title="Catherine Cooke" data-image-description="" data-image-caption="<p>Catherine Cooke<br />
Robbins, Salomon & Patt, Ltd.</p>
" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?fit=175%2C245" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2015/03/Catherine-Cooke-Shareholder-at-RSP.jpg?resize=175%2C245" alt="Catherine Cook Shareholder at Robbins, Salomon & Patt, Ltd." class="wp-image-1051"/></a><figcaption class="wp-element-caption">Catherine Cooke<br /> Robbins, Salomon & Patt, Ltd.</figcaption></figure></div>
<p><em>In March 2015, the Illinois Institute for Continuing Legal Education (“IICLE”) published its 2015 Edition practice handbook entitled: <strong>Commercial Landlord-Tenant Practice.</strong> To provide best-practice guidance to all Illinois attorneys, IICLE recruits experienced attorneys with relevant knowledge to write each handbook chapter. For the current edition, IICLE asked R. Kymn Harp and Catherine Cooke of Robbins, Salomon & Patt, Ltd., Chicago, Illinois, to write the chapter entitled Tenant’s Duties, Rights and Remedies. We were, of course, pleased to oblige. Although each of us represent commercial landlords at least as often as we represent commercial tenants, a clear understanding of the duties, rights and remedies of commercial real estate tenants is critical when representing either side of the commercial lease transaction.</em></p>
<p><em>The following is an excerpt (slightly edited) from our chapter, Tenant’s Duties, Rights and Remedies appearing in the 2015 Edition of IICLE <strong>Commercial Landlord-Tenant Practice</strong>. We hope you find this excerpt, and the excerpts that will follow, informative and useful. Feel free to contact IICLE directly to purchase the entire volume.</em></p>
<h2 class="wp-block-heading">How Commercial Lease Issues Commonly Arise – Getting it Right</h2>
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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>
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<p>It might, of course, be argued that the furnishing of customer parking is absolutely essential to the tenants’ business in a shopping center whereas parking in connection with the less competitive setting of an office building a mere convenience. . . However, here the tenants have been found to have an easement appurtenant by express contract and from that contractual relationship it follows, in our opinion, that the use of the appurtenant parking areas may not be reduced or substantially altered during the term of the lease. (Citation omitted.) Id.</p>
</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>
<div class="wp-block-image">
<figure class="aligncenter"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="109" data-attachment-id="283" data-permalink="http://harp-onthis.com/about/rsp_logofull_2pms/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=963%2C350" data-orig-size="963,350" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":""}" data-image-title="RSP_LogoFull_2PMS" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=300%2C109" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?fit=963%2C350" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=300%2C109" alt="RSP_LogoFull_2PMS" class="wp-image-283" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=300%2C109 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?resize=500%2C181 500w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/04/RSP_LogoFull_2PMS.jpg?w=963 963w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p><em>COMING UP . . .<br /></em></p>
<p>We hope you have found the foregoing discussion useful. Coming up, in <strong>Part 2</strong> of this series, we will discuss the often misunderstood leasehold “<em><strong>Covenant of Quite Enjoyment”</strong></em> in the context of commercial leases.</p>
]]></content:encoded>
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<slash:comments>4</slash:comments>
<post-id xmlns="com-wordpress:feed-additions:1">1052</post-id> </item>
<item>
<title>Value Investing vs. Momentum Investing</title>
<link>http://harp-onthis.com/value-investing-vs-momentum-investing/</link>
<comments>http://harp-onthis.com/value-investing-vs-momentum-investing/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 02 Oct 2014 11:10:52 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[banks]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[default]]></category>
<category><![CDATA[due diligence checklist]]></category>
<category><![CDATA[finance]]></category>
<category><![CDATA[investing]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[investor]]></category>
<category><![CDATA[property]]></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/commercial-real-estate/value-investing-vs-momentum-investing/</guid>
<description><![CDATA[As the commercial real estate market begins to pick up steam, beware the urge to follow a “momentum” investment strategy rather that a “value” investment strategy. Momentum investing relies on market increases to generate a return on investment. It is […]]]></description>
<content:encoded><![CDATA[<p>As the commercial real estate market begins to pick up steam, beware the urge to follow a “momentum” investment strategy rather that a “value” investment strategy.</p>
<p><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="104" data-permalink="http://harp-onthis.com/keys-to-closing-a-commercial-real-estate-transaction/httpwww-dreamstime-comroyalty-free-stock-photography-skeleton-keys-image28661257/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?fit=1500%2C1998" data-orig-size="1500,1998" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"(c) Peanutroaster | Dreamstime.com","focal_length":"0","iso":"0","shutter_speed":"0","title":"http:\/\/www.dreamstime.com\/royalty-free-stock-photography-skeleton-keys-image28661257"}" data-image-title="http://www.dreamstime.com/royalty-free-stock-photography-skeleton-keys-image28661257" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?fit=225%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?fit=768%2C1024" class="alignleft size-medium wp-image-104" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?resize=225%2C300" alt="http://www.dreamstime.com/royalty-free-stock-photography-skeleton-keys-image28661257" width="225" height="300" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?resize=225%2C300 225w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?resize=768%2C1024 768w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_28661257-licensed.jpg?w=1500 1500w" sizes="auto, (max-width: 225px) 100vw, 225px" /></a>Momentum investing relies on market increases to generate a return on investment. It is the “rising tide floats all boats” investment model. It is the investment model of which all “bubbles” are made.</p>
<p>As momentum investing accelerates, investment fundamentals tend to get lost. Instead of evaluating cash on cash returns using discounted cash flows that underlie “value” investing, a casino mentality takes hold – whereby investors can justify acquiring assets generating even a negative cash return, with the notion that rising prices will yield a profit. As the saying goes: “Any fool can make a profit in a rising market – and many fools do”. The challenge, of course, comes when a market hits a plateau or, worse yet, the market declines.</p>
<p>As a general proposition, value investing is significantly more prudent. If a project is cash flowing, and generating a positive return on investment, today and for the foreseeable future – which is a fundamental precept of a value investment strategy – the potential added return of any increase in value in the underlying asset caused by the “rising tide” effect is icing on the cake. Choose your cake with care.</p>
<p>There are, of course, exceptions to every rule. But, employing an “exception” is wisely done only after sober reflection of the particular circumstance to determine that in that particular case the exception is warranted. When an exception is regularly employed, it is no longer an exception – but, rather, becomes the rule itself.</p>
<p>As in all markets, there will be winners and there will be losers. It makes sense in the coming commercial real estate revival to position yourself and your company as a winner. You may not get another chance.</p>
<p>Exercise all appropriate due diligence. Use readily available and appropriate asset protection strategies. Invest with intentional regard to reliably building wealth though a well conceived value investing strategy – not a roulette table strategy that, over time, is virtually certain to fail.</p>
<p>If this recent economic debacle has taught us anything, it has taught that bad things can happen to good people who lose sight of the fundamentals. Good deals – even great deals – can be made if reliable commercial real estate investment fundamentals are employed.</p>
<p>As a wise mentor once told me: “You have a good brain – use it.”</p>
<p>Good luck.</p>
<p>R. Kymn Harp<br />
Robbins, Salomon & Patt, Ltd.<br />
Chicago, IL<br />
www.rsplaw.com<br />
JOIN MY THOUGHTBOARD: www.Harp-OnThis.com</p>
<p>REPORTING FROM THE FIELD. . .</p>
]]></content:encoded>
<wfw:commentRss>http://harp-onthis.com/value-investing-vs-momentum-investing/feed/</wfw:commentRss>
<slash:comments>1</slash:comments>
<post-id xmlns="com-wordpress:feed-additions:1">318</post-id> </item>
<item>
<title>Raising Capital for Real Estate Investment</title>
<link>http://harp-onthis.com/raising-capital-real-estate-investment/</link>
<comments>http://harp-onthis.com/raising-capital-real-estate-investment/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 18 Sep 2014 11:11:53 +0000</pubDate>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[#commerical real estate]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[#raising capital]]></category>
<category><![CDATA[accredited investor]]></category>
<category><![CDATA[checklist]]></category>
<category><![CDATA[Chicago]]></category>
<category><![CDATA[closing]]></category>
<category><![CDATA[crowdsourcing]]></category>
<category><![CDATA[funding]]></category>
<category><![CDATA[investment]]></category>
<category><![CDATA[investors]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[PPM]]></category>
<category><![CDATA[private placement memorandum]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[Regulation D]]></category>
<category><![CDATA[transactions]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=706</guid>
<description><![CDATA[At long last, the real estate investment market is beginning to show signs life. Commercial and industrial property transactions are increasingly common, and multifamily properties of all sizes are being snapped up by investors. Historically low interest rates, high occupancy […]]]></description>
<content:encoded><![CDATA[<div class="wp-block-image">
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< ![endif]--><span style="font-size: 11.5pt; line-height: 200%; font-family: 'Times New Roman','serif'; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin; mso-bidi-theme-font: minor-latin;">At long last, the real estate investment market is beginning to show signs life. Commercial and industrial property transactions are increasingly common, and multifamily properties of all sizes are being snapped up by investors. Historically low interest rates, high occupancy rates, increasing rental rates, and rising property values are contributing factors.</span></p>
<div class="wp-block-image">
<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><span style="font-size: 11.5pt; line-height: 200%; font-family: 'Times New Roman','serif'; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin; mso-bidi-theme-font: minor-latin;">Early transactions have often been <i style="mso-bidi-font-style: normal;">cash deals</i>, where the investor paid cash for the property rather than seek financing. This can be a great opportunity to achieve high yields for investors flush with cash, but what about everyone else?<span style="mso-spacerun: yes;"> </span>What about potential investors who have limited cash on hand?</span></p>
<p><span style="font-size: 11.5pt; line-height: 200%; font-family: 'Times New Roman','serif'; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin; mso-bidi-theme-font: minor-latin;">Unlike the easy-credit days preceding the <i style="mso-bidi-font-style: normal;">Great Recession</i>, real estate investment financing is more difficult to obtain and requires a significantly higher equity contribution by investors.<span style="mso-spacerun: yes;"> </span>Common loan to value ratios are 60% to 65%, which means that for each $1,000,000 the investor needs, the investor can likely borrow only $600,000 to $650,000. Consequently, the investor must come up with between $350,000 and $400,000 in equity for each $1,000,000 of purchase price. For many investors, this may not be an easy task.</span><wp-block data-block="core/more"></wp-block></p>
<p><i style="mso-bidi-font-style: normal;"><span style="font-size: 11.5pt; line-height: 200%; font-family: 'Times New Roman','serif'; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin; mso-bidi-theme-font: minor-latin;">Solution?</span></i><span style="font-size: 11.5pt; line-height: 200%; font-family: 'Times New Roman','serif'; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin; mso-bidi-theme-font: minor-latin;"> Go back to the way we did things in the <i style="mso-bidi-font-style: normal;">old days</i> – before the days of easy, near 100% financing: pool funds with other like-minded investors.</span></p>
<p><span style="font-size: 11.5pt; line-height: 200%; font-family: 'Times New Roman','serif'; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin; mso-bidi-theme-font: minor-latin;">When raising capital from investors, keep in mind that you are engaged in a <i style="mso-bidi-font-style: normal;">securities</i> offering governed by state, and perhaps federal, securities laws. This is true even if the money is being invested by <i style="mso-bidi-font-style: normal;">friends and family</i>. A private placement memorandum (“PPM”) is advisable to protect against claims by investors that the investment turned out to be other than what it was portrayed to be. This is particularly important if the investment goes bad – as investments sometimes do. </span></p>
<p><span style="font-size: 11.5pt; line-height: 200%; font-family: 'Times New Roman','serif'; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin; mso-bidi-theme-font: minor-latin;">PPM’s for real estate investments need not be particularly complicated, but they need to comply with applicable securities laws and include the disclosures and information necessary to protect the promoter from liability. The promoter must be particularly cautious if funds are being obtained from investors other than “<a title="Accredited Investor - Reg D definition" href="https://www.sec.gov/answers/accred.htm" target="_blank" rel="noopener"><i style="mso-bidi-font-style: normal;">accredited investors</i></a>” as that term is defined by Rule 501 of Regulation D. Helping promoters comply with the law while raising capital is a key function for lawyers.</span></p>
<p><span style="font-size: 11.5pt; line-height: 200%; font-family: 'Times New Roman','serif'; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin; mso-bidi-theme-font: minor-latin;">In September 2013, as required by the <a title="Jumpstart Our Business Startups Act (Jobs Act)" href="http://www.gpo.gov/fdsys/pkg/BILLS-112hr3606enr/pdf/BILLS-112hr3606enr.pdf" target="_blank" rel="noopener"><i style="mso-bidi-font-style: normal;">Jumpstart Our Business Startups Act</i> (JOBS Act)</a>, new rules were established by the <a title="SEC Highlights re JOBS ACT" href="http://www.sec.gov/spotlight/jobs-act.shtml" target="_blank" rel="noopener">U.S. Securities and Exchange Commission</a> to permit general solicitation or general advertising for certain securities offerings limited to accredited investors only. While this may prove helpful to promoters’ efforts to find investors and raise funds, the importance of a carefully crafted PPM has not diminished. Thoughtful promoters and lawyers will recognize that a well-crafted PPM may now be more important than ever.</span></p>
<p><span style="font-size: 11.5pt; line-height: 200%; font-family: 'Times New Roman','serif'; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin; mso-bidi-theme-font: minor-latin;">Raising capital through a private offering of securities is a viable strategy for real estate investment, but it must be done with skill and great care.<span style="mso-spacerun: yes;"> </span>Failure to fully comply with the law can be financially catastrophic.<span style="mso-spacerun: yes;"> </span>Take care to do it right.</span></p>
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<post-id xmlns="com-wordpress:feed-additions:1">706</post-id> </item>
<item>
<title>Asset Protection – Lessons Learned</title>
<link>http://harp-onthis.com/asset-protection-lessons-learned/</link>
<comments>http://harp-onthis.com/asset-protection-lessons-learned/#comments</comments>
<dc:creator><![CDATA[Kymn Harp]]></dc:creator>
<pubDate>Thu, 18 Sep 2014 11:10:19 +0000</pubDate>
<category><![CDATA[Asset Protection]]></category>
<category><![CDATA[Business]]></category>
<category><![CDATA[Commercial Real Estate]]></category>
<category><![CDATA[Private Sector Business]]></category>
<category><![CDATA[White Papers]]></category>
<category><![CDATA[#CRE]]></category>
<category><![CDATA[asset protection]]></category>
<category><![CDATA[business]]></category>
<category><![CDATA[closings]]></category>
<category><![CDATA[commercial real estate]]></category>
<category><![CDATA[conducting due diligence]]></category>
<category><![CDATA[consequences]]></category>
<category><![CDATA[default]]></category>
<category><![CDATA[defense]]></category>
<category><![CDATA[due diliigence]]></category>
<category><![CDATA[foreclosure]]></category>
<category><![CDATA[keys to closing]]></category>
<category><![CDATA[property]]></category>
<category><![CDATA[purchase]]></category>
<category><![CDATA[real estate]]></category>
<category><![CDATA[what to look for]]></category>
<guid isPermaLink="false">http://harp-onthis.com/?p=58</guid>
<description><![CDATA[“The best time to plant a tree was twenty years ago.         The second best time is today.” Chinese proverb For over 35 years, I have represented commercial real estate investors, developers and business owners. Most of that time has […]]]></description>
<content:encoded><![CDATA[
<h4 class="wp-block-heading"><em>“The best time to plant a tree was twenty years ago.</em></h4>
<h4 class="wp-block-heading"><em> The second best time is today.”</em></h4>
<p><em>Chinese proverb</em></p>
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<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="300" height="300" data-attachment-id="59" data-permalink="http://harp-onthis.com/asset-protection-lessons-learned/httpwww-dreamstime-comstock-image-empty-safe-image27096841/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?fit=1732%2C1732" data-orig-size="1732,1732" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"(c) Marvinjk | Dreamstime.com","focal_length":"0","iso":"0","shutter_speed":"0","title":"http:\/\/www.dreamstime.com\/stock-image-empty-safe-image27096841"}" data-image-title="http://www.dreamstime.com/stock-image-empty-safe-image27096841" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?fit=300%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?fit=1024%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?resize=300%2C300" alt="http://www.dreamstime.com/stock-image-empty-safe-image27096841" class="wp-image-59" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?resize=300%2C300 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?resize=150%2C150 150w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?resize=1024%2C1024 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/03/dreamstime_m_27096841.jpg?w=1732 1732w" sizes="auto, (max-width: 300px) 100vw, 300px" /></a></figure></div>
<p>For over 35 years, I have represented commercial real estate investors, developers and business owners. Most of that time has been spent helping them acquire, finance, expand, develop, manage and grow their assets and businesses. For the past 5 to 6 years, as we have struggled through the <i>Great Recession</i>, a huge amount of my time has been spent helping clients <i>keep</i> their assets.</p>
<p>Growing up, I was steeped in the practical view that it is not so much what you acquire that counts, but, rather, what you keep. My parents and grandparents were not in the real estate business to make <i>others </i>wealthy. They were playing real life Monopoly<span style="font-size: small;">®</span>. They played to win. It was less about money for money’s sake than it was </p>
<span id="more-58"></span>
<p>a means of keeping score. Invest. Reinvest. Expand the bottom line. Control your losses. And keep what you acquire.</p>
<p>A key concern was always asset protection. Perhaps this was a byproduct of my grandfather’s experiences during the <i>Great Depression</i>. He did well, while others around him lost everything. A theme underpinning virtually all investment strategies was to structure our business affairs into risk remote compartments, so that if bad things happened to one project, or with one business, the damage could be contained. My father would compare it to the structure of his ship in the Navy during World War II. If the hull was damaged, water tight bulkheads could contain the damage to avoid jeopardizing the entire ship.</p>
<p>This brings to light one of the great misconceptions about asset protection. A sizable number of people start with the belief that the objective of asset protection is to prevent all creditors from ever getting any of their assets or income. Realistically, it doesn’t work that way. Not even if you use an offshore asset protection trust or other advanced asset protection devices. To even approach making that happen, you would have to create such a tangled weave of trusts and limited liability entities, and give up so much control, that you would never be able to conduct your business or live your life as a functioning human being. It would be immensely expensive, and it still wouldn’t protect <i>everything</i>.</p>
<div class="wp-block-image">
<figure class="alignright size-large is-resized"><img data-recalc-dims="1" loading="lazy" decoding="async" data-attachment-id="1918" data-permalink="http://harp-onthis.com/asset-protection-lessons-learned/assetmanagementwordscloudonscreen-financialandbusinessconcept/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?fit=2560%2C1707" data-orig-size="2560,1707" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"Shutterstock","camera":"","caption":"","created_timestamp":"0","copyright":"Copyright (c) 2018 Wright Studio\/Shutterstock. No use without permission.","focal_length":"0","iso":"0","shutter_speed":"0","title":"Asset,Management,Words,Cloud,On,Screen.,Financial,And,Business,Concept.","orientation":"1"}" data-image-title="Asset,Management,Words,Cloud,On,Screen.,Financial,And,Business,Concept." data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?fit=300%2C200" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?fit=1024%2C683" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection.jpg?resize=401%2C267" alt="asset protection" class="wp-image-1918" width="401" height="267" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=1024%2C683 1024w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=300%2C200 300w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=768%2C512 768w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=1536%2C1024 1536w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2023/03/asset-protection-scaled.jpg?resize=2048%2C1365 2048w" sizes="auto, (max-width: 401px) 100vw, 401px" /></figure></div>
<p>Asset protection need not be particularly complicated or expensive. Basic asset protection strategies can be implemented that do not get in the way of your business or everyday life. Although advanced asset protection planning can utilize off-shore trusts and off-shore bank accounts, those tools and techniques are the exception rather than the rule. They are available if the situation warrants, but for most people there is seldom a legitimate reason to go to such extremes.</p>
<p>Sadly, a significant number of commercial real estate investors and business owners, and many of their lawyers and accountants, pay almost no attention to even basic asset protection strategies. This was never more obvious, and unfortunate, than during the <i>Great Recession</i> we have been working through over the past five to six years. Otherwise sophisticated and historically successful commercial real estate investors, developers and business owners have lost virtually everything. What makes this even more tragic is that, with even modest asset protection planning, many of these catastrophic financial disasters could have been averted.</p>
<p>Clients of mine who planned ahead by structuring their affairs for asset protection have survived this recession and are generally well positioned to move forward to take advantage of emerging opportunities as the economy improves. Many who did not are faced with starting over.</p>
<p>Why not think ahead to protect your assets? You are under no legal obligation to structure your financial affairs in a way that makes it easier for banks and other creditors to take virtually everything you own. Your obligation is to your family, and to yourself, to make sure your life’s work and life’s savings are not lost in the event of financial calamity.</p>
<p>A key point about asset protection is that, to be effective, it must be done well in advance. Once the proverbial <i>fan</i> has been hit, it is likely too late. There may still be some modestly effective strategies to be employed to minimize damage, but real asset protection with powerfully effective outcomes starts when there are no (or, at least, very few) storm clouds on the horizon.</p>
<p>Once you are in financial trouble, it is often too late. Transfers of assets for less than fair value can be set aside as a preference in bankruptcy, or as a fraudulent transfer. The “fraud” in “fraudulent transfer” is not traditional fraud. It is simply the transfer of an asset for less than fair value for the principal purpose of avoiding creditors.</p>
<p>In Illinois, the statute of limitations for fraudulent transfers is four years. This means attempts to transfer assets for less than fair value can be attacked and set aside for four years after the transfer is made. For Medicaid, the look-back period is five years. Early adoption and implementation of even a simple asset protection plan can avoid these attacks.</p>
<p>One of the simplest examples of asset protection: If you are married and own a home with your spouse in Illinois or Indiana, and in most other states, there is virtually no excuse for not owning the home as <i>tenants by the entireties</i> to protect your home from claims of creditors of only one spouse. This is particularly true if one spouse is engaged in business or professional activities with a high risk of liability (business owner, investor, developer, doctor, entrepreneur, etc.), while the other is not. Remarkably, I discovered while defending real estate developers and investors in loan workout and loan settlement efforts over the past few years that not even this modest asset protection tool is always in place. It would have cost nothing. Instead, its absence cost some families their homes.</p>
<p>Beyond these fundamental considerations, there are many others. A common mistake made by business owners is that they will sometimes form a corporation or limited liability company with the intent to protect themselves from personal liability, but then place virtually all of their business assets in a single company, or in a subsidiary of a high risk operating company. If a judgment is entered against the company, all of the business assets may be lost.</p>
<p>Whenever practical, business operations posing a risk of liability should be separated from asset ownership. Assets can and should typically be owned by a low-risk (preferably tax-advantaged) entity and leased or licensed to the higher risk operating company. The best, and least expensive, time to implement this structure is when you acquire the asset or business. Ownership of the low-risk company should likewise be held by a low-risk owner – perhaps a spouse, adult child, trust or holding company. The asset protection plan can, and often should, be part of a more comprehensive estate plan.</p>
<p>Similarly, real estate investments and business ownership structures are often not adequately designed to militate against the risk of liability arising from loan and lease guaranties or other sources of liability to individual sponsors or principals.</p>
<p>There is much that can be done to protect your assets. Many techniques present tax advantages as well. Exactly what can be done depends upon your particular circumstances and when you begin. The best time to begin would have been several years ago. The second best time to begin is now. It is foolish to leave your hard earned assets needlessly exposed to creditor claims when even basic asset protection planning can protect them.</p>
<p>War stories abound of commercial real estate investors and business owners who have lost fortunes, large and small, because they did not plan ahead. Perhaps they thought they were smart enough to be able to avoid financial catastrophes like we have experienced over the past several years. Or they thought they had large enough incomes or net worth to withstand economic adversity or unexpected liability. Or they believed they had such great relationships with their banks or other lenders that obtaining loan extensions or new working capital lines of credit would never be a problem. I’ve head most of the “reasons” – but none of them matter when your assets are being attached by hungry creditors. When you go from being worth millions, to having huge unsatisfied deficiency judgments entered against you, the <i>reasons</i> for not protecting your assets, and your family’s future, ring hollow.</p>
<p>The past five to six years, in particular, have been an asset protection laboratory. Theory has been tested. We have seen many examples of even basic asset protection techniques that work, and have seen, unfortunately, what happens when little or no asset protection planning took place.</p>
<p>If your real estate investments and commercial activities are worth your time and energy – particularly if you dedicate most of your adult life away from your family working to make them succeed – then they are worth protecting. It is much more cost effective to develop and implement an asset protection plan “<i>as you go</i>“, rather than waiting until you decide your estate is “<i>big enough to protect</i>“. At that point, it may be too late, it will certainly be more expensive, and will very likely be less effective. Often, asset protection <i>as you go</i> will cost no more to do right than you spend doing it wrong.</p>
<p>Over the next several years a lot of rebuilding will take place. Literally, in the form of new and redeveloped commercial real estate projects and business enterprises, and figuratively, as previously successful real estate professionals and business owners rebuild their financial lives. Do not make the same mistakes this time around as were made by many in the past. Plan ahead. Build-in basic asset protection strategies in every business structure you devise. Don’t wait another twenty years. Depending upon your age, you may not get a <i>third</i> chance.</p>
<p>Thanks for listening . . .</p>
<p>Kymn</p>
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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>
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<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>
<div class="wp-block-image">
<figure class="alignleft"><a href="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/U.S.-Tax-image-iStock.jpg"><img data-recalc-dims="1" loading="lazy" decoding="async" width="153" height="300" data-attachment-id="615" data-permalink="http://harp-onthis.com/keys-rules-section-1031-exchanges/u-s-tax-image-istock/" data-orig-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/U.S.-Tax-image-iStock.jpg?fit=990%2C1939" data-orig-size="990,1939" 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="U.S. Tax image [iStock]" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/U.S.-Tax-image-iStock.jpg?fit=153%2C300" data-large-file="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/U.S.-Tax-image-iStock.jpg?fit=522%2C1024" src="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/U.S.-Tax-image-iStock.jpg?resize=153%2C300" alt="U.S. Tax image [iStock]" class="wp-image-615" srcset="https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/U.S.-Tax-image-iStock.jpg?resize=153%2C300 153w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/U.S.-Tax-image-iStock.jpg?resize=522%2C1024 522w, https://i0.wp.com/harp-onthis.com/wp-content/uploads/2013/09/U.S.-Tax-image-iStock.jpg?w=990 990w" sizes="auto, (max-width: 153px) 100vw, 153px" /></a></figure></div>
<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>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>
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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>
<span id="more-224"></span>
<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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