re develop and finance outline

7/31/2019 RE Develop and Finance Outline

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THE PLACE OF LAWYERS IN REAL ESTATE TRANSACTIONS New Jersey Supreme Court [T]he record does not contain proof that, in the aggregate, the damage that has occurred in

South Jersey [where lawyers are seldom involved in residential closings] exceeds that

experienced elsewhere [in North Jersey where lawyers typically preside over residential

closings.] In this case, the absence of proof is particularly impressive, for the dispute between

the realtors and the bar is of long duration, with the parties and their counsel singularly able and

highly motivated to supply such proof as may exist. The South Jersey practice also appears to

save money. For the record demonstrates what is obvious, that sellers and buyers without

counsel save counsel fees. We believe, given this record, that the parties must continue to

have the right to decide whether those savings are worth the risks of not having lawyers to

advise them in what is almost always the most important transaction they wrn ever

undertake, We realize this conclusion means that throughout the transaction, sellers and buyers

may not have the benefit of their own counsel but will look to brokers and title officers, often

with conflicting interests, for practical guidance and advice.

Lawyers owe a duty of loyalty to their clients that is paramount to all other considerations.This loyalty often results in cost savings to a client in the thousands of dollars.

Commercial Closings Lawyers may be asked

to negotiate, draft contracts, review documents and actually process the closing.

Aspects of Modern Real Estate Practice Residential real estate markets are no longer local. Rather than having countless individual local markets for real estate transactions, we now have

a fully integrated market operating at the super-regional, national and international levels.

This transformation away from local and toward a more fully integrated national market hasenhanced the profitability of real estate related activities and has raised important

implications for the practice of law. In particular, with respect to the standard applied to the

quality of professional legal services, it has shifted the frame of reference for determining a

minimal level of competence for the exercise of professional judgment.


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The driving forces behind this change were the sudden availability ofnew investment vehicles--which offered traditional

household savers far higher returns than regulated passbook savings accounts--and

the development of the legal and technical infrastructure needed to support amodern secondary mortgage market for indirect investment in residential real estate

activities.

The modern secondary mortgage market has been responsible for reviving the financial health of many lending institutions. keeping residential real estate markets liquid reducing mortgage costs, and reviving the financial health of many lending institutions

Most significantly, real property and mortgage laws have been pushed toward greateruniformity as lenders have turned their attention to the demands of distant and wealthy

mortgage market investors, and away from the particular concerns of local borrowers. Simply

stated, the real estate business is no longer local because the money is no longer local.

The client will expect the attorney to understand and explain the roles of these professionals,as well as confer, and where necessary, negotiate with them while diligently protecting the

buyer's expectations. In sum, the lawyer must be the one person in the transaction who, at

every step, is completely committed to the buyer's interests.

The Role of the Lawyer The lawyer's job involves understanding the consequences of the law, the role of legal

institutions, and the dynamic context in which legal transactions take place.

The Role of the Lawyer Where possible, the lawyer should act to eliminate or reduce the risk of an unexpected

contingency or potential loss.

The Role of the Lawyer Even when certain risks cannot be eliminated, the lawyer must use the law to minimize

potential future risks to the client.

This may include bringing in professionals like building inspectors or surveyors to prepareopinions on the property, or it may involve arranging for insurance to cover known, or

knowable, risks such as potential losses due to fire or earthquakes.


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The Role of the Lawyer It also involves making use of contract contingencies, representations and warranties,

indemnification agreements, subordinations, and a variety of other legal tools.

The Role of the Lawyer All real estate transactions involve risks, and the primary reason for hiring a lawyer is to engage

a professional who is competent in the understanding, identification, and proper management

of the risks involved.

The Role of the Lawyer the attorney in a commercial real estate sale is requested to perform legal due diligence The Role of the Lawyer

This type of due diligence is a two-step process: first, the attorney collects every piece of paper relevant to the deal, including

leases, notes, mortgages, easements, franchise agreements, environmental reports, government records pertaining to the property, and applicable statutes.

The Role of the Lawyer Second, the attorney scrutinizes each one of these documents to make sure the

client is receiving exactly what was promised. To do this, the attorney needs to

know the clients expectations.

For example, the attorney representing a buyer purchasing an income-producing property such as an office building or shopping center will

carefully match the projected rents as described in the promotional

material with the provisions in all existing leases.

Lease clauses for review:


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Are there lease termination or rent abatement rights Are there guaranties for the leases With shopping centers are there operating hours obligations

and going dark provisions

Are there security deposits and are they held as specified in theleases.

Are there any outstanding brokerage commissions due Utilities Rights to assign or sublet. Residential issues Stabilized tenants Controlled tenants Dhcr complaints

Lease clauses for review contd: Are there lease termination or rent abatement rights Are there guaranties for the leases With shopping centers are there operating hours obligations

and going dark provisions

Are there security deposits and are they held as specified in theleases.

Are there any outstanding brokerage commissions due Utilities Rights to assign or sublet. Residential issues Stabilized tenants Controlled tenants Dhcr complaints


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PROFESSIONAL RESPONSIBILITIES OF THE REAL ESTATE TRANSACTIONS LAWYER Engagement Letters Non Engagement Letters New Court Rule Requires Lawyers to Provide Letters of Engagement to Clients lawyers are required to provide many clients with a "letter of engagement." The purpose of the

rule, as explained by the New York State Office of Court Administration, which initially proposed

the rule in June 2001, is "to ensure that there is a memorialized meeting of the minds with

regard to the basic terms of the engagement."

There are three basic components to the letter: (1) explaining the scope of legal services to be performed; (2) explaining the fees and expenses to be charged, along with the lawyers billing practices;

and

(3) noting that the client may have a right to arbitration of any fee dispute that may ariseunder

Lawyers who choose not. to use engagement letters, however, are asking for trouble.Without an express agreement about the representation, the agreement between the

attorney and client may be implied. In the course of implying the existence and terms of the

agreement, all contested matters are likely to be resolved against the attorney, who should

have known better than to enter a professional relationship without specifying its parameters

in an engagement letter. John M. Bur,nan, Ethical Considerations When Representing

Organizations, 3 WYO. L. Rev, 581, 585-86 (2003).

The ABA Model Rules of Professional Conduct require a lawyer to: (1) Provide competent representation; (2) Abide by the clients decisions as to the scope and objectives of the representation; (3) Act with reasonable diligence; (4)Keep the client informed; (5) Avoid overcharging the client; (6) Avoid revealing confidences; (7) Avoid conflicts of interest; (8) Avoid business relationships with or adverse to clients; and


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(9) Hold the property of others with the care of a fiduciary. Attorney Representation of Multiple Parties The American Bar Association favors separate counsel so that conflicts of interests between

lawyer and client can be avoided and conflicts between purchaser and vendor can be

anticipated and clearly resolved. *T+he prevailing ethical model of a partisan advocate acting

zealously with absolute loyalty to a single client frowns upon a lawyer with divided loyalties

since no man may serve two masters.

Model Rules of Professional ConductClient-Lawyer Relationship

Rule 1.8 Conflict Of Interest: Current Clients: Specific Rules

Rule 1.8 Conflict Of Interest: Current Clients: Specific Rules (a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an

ownership, possessory, security or other pecuniary interest adverse to a client unless:

(1) the transaction and terms on which the lawyer acquires the interest are fair andreasonable to the client and are fully disclosed and transmitted in writing in a manner

that can be reasonably understood by the client;

(2) the client is advised in writing of the desirability of seeking and is given areasonable opportunity to seek the advice of independent legal counsel on the

transaction; and

(3) the client gives informed consent, in a writing signed by the client, to the essentialterms of the transaction and the lawyer's role in the transaction, including whether

the lawyer is representing the client in the transaction.

Rule 1.7 Conflict Of Interest: Current Clients (a) Except as provided in paragraph (b), a lawyer shall not represent a client if the

representation involves a concurrent conflict of interest. A concurrent conflict of interest exists

if:

(1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be

materially limited by the lawyer's responsibilities to another client, a former client or a

third person or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), alawyer may represent a client if:


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(1) the lawyer reasonably believes that the lawyer will be able to provide competentand diligent representation to each affected client;

(2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one client against

another client represented by the lawyer in the same litigation or other proceeding

before a tribunal; and

(4) each affected client gives informed consent, confirmed in writing. Under what circumstances is a lawyer permitted to represent multiple clients in the same or

substantially similar matters?

A lawyer may represent multiple clients in the same or substantially similar matters providedthat the lawyer's conduct conforms to DR 5-105 of the Lawyer's Code of Professional

Responsibility, as amended June 30, 1999. See 22 NYCRR ? 1200.24. DR 5-105(A) and (B)provide, respectively, that a lawyer shall decline proffered employment or shall not continue

multiple employment,

"if the exercise of independent professional judgment in behalf of a clientwill be or is likely to beadversely affected by the [multiple representation],

if it would be likely to involve the lawyer in representing differing interests, except to theextent permitted under DR 5-105(C)."

The Definitions section of the Lawyer's Code defines "differing interests" as "includ[ing] everyinterest that will adversely affect either the judgment or the loyalty of a lawyer to a client,whether it be a conflicting, inconsistent, diverse, or other interest." Multiple representation

can cause serious hardship to one or more clients if a lawyer is forced to withdraw after having

performed significant legal services.

DR 5-105(C) permits multiple representation in the situations covered by DR 5-105(A) and (B) "if

a disinterested lawyer would believe that the lawyer can competently represent the interest of

each and if each consents to the representation after full disclosure of the implications of the

simultaneous representation and the advantages and risks involved."

The lawyer, before engaging in a dual representation, should prepare for both parties acomprehensive explanation of potential areas of disagreement that could arise.8 Until being

shown a lucid depiction of potential areas of conflict, most clients wont be in a position to

grant meaningful consent.

The Scrivener Exception. Some courts have allowed a lawyer to represent both parties whenacting primarily as a scrivener, implementing an agreement the parties have already

negotiated between themselves.


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Duty of Confidentiality to the Client. Acutely aware of the confidentiality rule, attorneys in their initial meetings caution potential

clients not to reveal confidential information until they have worked out the terms of a

mutually acceptable engagement agreement because, until then, the client may not be

entitled to the benefit of the lawyer. client privilege.)

Attorneys Dutyto Unrepresented Party. when an attorney represents one of the parties to a real estate deal, and the other is

unrepresented, does the attorney owe any duty of professional care to the unrepresented

party?

Generally speaking, under current case law, an attorney may be liable to a non-client if theclient intended the attorneys services to benefit the non-client, or the attorney knew or

should have known that the non-client would rely on the attorneys actions.

[A]ttorneys may owe a duty of care to non-clients when the attorneys know, or should know,that non-clients will rely on the attorney's representations and the non-clients are not too

remote from the attorneys to be entitled to protection ... [A] lawyer's duty may run to third

parties who forseeably rely on the lawyer's opinion or other legal services.

Petrillo, 139 N.J. at 483-84, 485, 655 A.2d 1354An attorney is under an ethical obligation to do two things.

First, the attorney must explain to the unrepresented opposing party the fact that the attorneyis representing an adverse interest.

Second, the attorney must explain the material terms of the documents that the attorney hasdrafted for the client so that the opposing party fully understands their actual effect. When the

transaction is as one-sided as that in the present case, counsel preparing the documents is

under an ethical dutyto make sure that an unrepresented party understands the possible

detrimental effect of the transaction *emphasis added+ and the fact that the attorneys loyalty

lies with the client alone.


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FINDING AND PRICING THE DEAL

SOURCES OF DATA ABOUT PROPERTIES AND NEIGHBORHOODS Brokers Neighbors Local Periodicals THE NEGOTIATION PROCESS SHOULD YOU NEGOTIATE DIRECTLY, THROUGH OR WITH AN AGENT? For one thing, brokers seldom actually negotiate. They calmly carry offers and counteroffers

back and forth passively between the parties. Because they depend on sales commissions fora living, brokers are motivated to conclude deals quickly, not necessarily the best thing for the

principals.

METHODS OF FINANCIAL ANALYSIS FORREAL ESTATE INVESTMENTS

STANDARD METHODS OF VALUING REAL ESTATE comparing rates of return on potential investments, and

displaying estimated yields.

ESTIMATING YIELDS ON REAL ESTATE INVESTMENTS The investor buying income producing realty anticipates contributing capital at the outset and

possibly being called upon to invest additional capital during the life of the project, as planned

or needed.

In return, the investor anticipates three sources of gain: (1) annual cash flow from rents, (2) equity appreciation from eventual sale, and (3) federal income tax benefits. CURRENT YIELD/CASH ON CASH RETURN Example: an investor buys land for $5,000,000 and


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sells it for $6,000,000 a year later. To simplify further, assume the investor has no holding costs (no property taxes or insurance premiums to pay) and no selling costs (brokerage fees, legal, title and escrow charges). The investors net profit is $1,000,000a 20% cash on cash return on its $5,000,000

investment.

Cash on cash/current yield has significant drawbacks in failing to account for variations in the timing of income and expenses and producing a single number representing the rate of return on the investment. To depict the impact of timing, investors use annualized spreadsheets to calculate their current

yield for multi-year Investments.

Example: An investor buys an apartment building for $10,000,000, paying $3,000,000 in cash,and borrowing the balance.

The gross rental income in the first normal year of operation is $1,550,000. Annual operating expenses are $500,000. Subtract gross income from operating expenses to derive net operating income (NOl), in this

case, $1,050,000.

Annual debt service is $600,000. Subtract these two numbers from gross income to derive cashflow after debt service$450,000.

In the first year of this investment, the investors cash on cash return, the return on equity, is15%450,000/3,000,000.

Suppose rents and operating expenses increase annually, rents more rapidly than expenses inabsolute terms though not in percentage terms. Here is how a five-year analysis might look:

PRESENT VALUE Because the timing of inputs and returns from each realty asset is unique, analyzing an

individual investment or comparing one investment with another, requires a reliable

technique for placing a time value on money, a method sensitive to the varying time value

preferences of each investor.


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Present value represents the sum a person would pay today for an amount to be received inthe future and represents a search for the payees indifference pointthe least sum

acceptable to a particular individual for the deferred payment.

. NET PRESENT VALUE AND INTERNAL RATE OF RETURN Net Present Value (NPV) compares the value of a dollar today versus the value of that same

dollar in the future. It represents the dollar amount by which a particular investment

outperforms or underperforms an investors benchmark rate, or desired discount rate.

The NPV formula takes into account the amount of cash the investor will receive each year, including the residual value upon sale, and the timing of income and expenses, by summing the present value of all the outflows (expenses) a project or improvement requires, with all the inflows (income) the project or investment is expected to yield. the Internal Rate of Return is the percentage rate that would make the cash flows plus

residual value equal to the current market value of the investment.

Internal in IRR means that the formula only includes returns on capital earned while stillinvested in the project. Once capital has been withdrawn from the project, returns on that

capital no longer count towards project IRR.

Conversely, the IRR formula presumes that the investor earns interest on accrued interest leftin the deal. Interest is usually compounded annually but IRR formulas exist to account for

compounding at any interval: daily weekly, monthly, quarterly, or continuously.

When Investors Dont Receive Promised Yields, Is the Promoter Liable to Them? Even if the investors had actually relied upon those numbers in deciding to place their funds

with the developer and even if the developer had intended for the investors to rely on the

projected numbers, the court would have regarded that investor reliance as patently

unreasonable.

Here, plaintiffs could easily have obtained background information about the anticipatedstate of the Harlem real estate market by consulting the legal and financial advisors who had

guided their previous investment decisions. Plaintiffs could also have requested supporting


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documentation for the project summaries, investigated the project site and its existing leases,

reviewed the construction contract and asked for more information about theY terms and

success rate of *the developer+s other real estate development ventures.

In any event, the business judgment rule shielded the promoter from liability to the investorssince they ould come up with no hard evidence of bad faith, conflict of interest or personalbias

Johnston v Norton The claim that withstood the defendants multiple motions for summary dismissal was the

attorneys breach of a fiduiary relationship for the unauthorized release of escrowed funds

entrusted to them.

APPROACHES TO VALUATION Market Comparison Approach: Principle of Substitution APPROACHES TO VALUATION Cost Approach: Principle of Contribution. The cost approach values property with a five-step process. (1) The appraiser values the land. (2) The cost of improvements is added, usually based on replacement cost. (3) The appraiser deducts the depreciation caused by curable and incurable physical

deterioration, functional deficiencies and obsolescence, adverse economic influences, and

changes in market preferences.

(4) The appraiser deducts the accrued depreciation from the reproduction cost of improvementsto arrive at the depreciated cost estimate.

(5) The appraiser adds the estimated land value to the depreciated cost estimate to arrive at avalue estimate for the property or site.

APPROACHES TO VALUATION Income capitalization Approach: Principle of Anticipation The appraiser considers: (1) historical operating expenses such as energy bifis, maintenance contracts, etc.;

(2) historical building management forecasts;

(3) existing leases and billed escalation rates;

(4) must-take space, rights of first refusal and/or options given to


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existing tenants; -

(5) market rents in light of existing supply and demand, future construction, proposed buildings,

building moratoria, and zoing adjustments;

(6) existing financing; .

(7) repair history and estimated life of major building systems such as heating, ventilation, air

conditioning, roofing, etc.;

(8) commissions to leasing brokers in the area and tenant improvement allowances given to

attract tenants in the market place;

(9) proposed renovations, possible expansions, and mandatory

retrofitting such as asbestos removal, fire sprinklers, etc; and

(10) economic factors such as job growth and inflation.

The next step is to select a discount rate for the project. The discount rate, or required rate ofreturn, reflects the risk level .of the project, inflationary expectations, market expectations,

interest rates, and duration of the project. Using this discount rate, the appraiser values the

project cash flow for each year of the investment, adds these figures together, and subtracts theinitial investment to determine th present value of the property.

THE PRO FORMA The financial feasibility package contains the pro forma, which describes the projects estimated

income and expenses.


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OBTAINING ENTITLEMENTS FOR REALESTATE DEVELOPMENT

Zoning and Land Use An Introduction to Zoning Terminology New York City is divided into three basic zoning districts:

residential (R), commercial (C) and manufacturing (M). http://nyc.gov/html/dcp/pdf/zone/map16c.pdf

The three basic categories are further subdivided by the intensity of use, whether for retail or manufacturing categories, parking, building bulk or residential density.

Each zoning district regulates permitted uses; the size (bulk) of the building permitted in relation to the size of the lot; the required open space for residential uses on the lot or the maximum amount of

building coverage allowed on the lot;

the number of dwelling units permitted on the lot; the distance between the building and the street; the distance between the building and the lot line; the amount of parking required; and other requirements applicable to specific residential, commercial or manufacturing

activities, including the size and placement of signs.

AS-OF-RIGHT DEVELOPMENT


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This means that a developer may build a structure "as-of-right" if the Department of Buildings issatisfied that the structure complies with the provisions of the Zoning Resolution and the

Building Code. No action is required by the City Planning Commission under such circumstances.

The developer simply files plans with the Department of Buildings and can begin construction

upon issuance of a building permit.

BUILDING SIZE The maximum size (or bulk) of a building on a lot is determined by the floor area ratio (FAR)

assigned in the Zoning Resolution to each zoning district

A building can contain floor area equal to the lot area multiplied by the floor area ratio (FAR) ofthe district in which the lot is located

DENSITY Applying only to residential developments, density refers to the number of people living in a

certain area, generally expressed in terms of the number of families, households or housing

units per acre. Density controls, one of several ways used to control the intensity of

development, permit the city to plan in an orderly way for new schools, utilities and transit.

DISCRETIONARY ACTIONS Special Permits Some development is allowed only by special permit granted either by the City Planning

Commission with City Council review or by the Board of Standards and Appeals.

There are two types of special permits: modifications of the use regulations and modifications ofthe bulk or parking regulations. In general, projects that have greater land use impacts or

involve significant planning issues are under the jurisdiction of the City Planning Commission;

localized issues are reviewed by the Board of Standards and Appeals

Authorizations

At its discretion, the City Planning Commission, by resolution at a public meeting, may modifycertain zoning requirements provided that specific findings set forth in the Zoning Resolution

have been satisfied. Unlike the procedure for special permits, a public hearing is not required.

Certifications For some as-of-right development, the City Planning Commission or the Chairperson of the City

Planning Commission is required to administratively certify to the Department of Buildings that

certain specified conditions set forth in the Zoning Resolution have been satisfied before a

building permit may be issued


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Appendix A

Index of Uses

When a district associated with a given #use# is designated in the Index with an asterisk (*), the#use# is permitted in such district only by special permit of the Board of Standards andAppeals,

as set forth in the applicable portions of this Resolution.

When a district associated with a given #use# is designated in the Index with a double asterisk(**), the #use# is permitted in such district only by special permit of the City Planning

Commission, as set forth in the applicable portions of this Resolution.

#Uses# listed in Use Group 11A, 16, 17, or 18 as permitted #uses# in C8 or #ManufacturingDistricts# must also meet the applicable performance standards for these districts.

#Uses# listed in Use Group 18 are permitted in M1 or M2 Districts if they can comply with theapplicable performance standards for those districts.

Variances Sometimes the peculiar shape or unusual topography of a parcel would cause unnecessary

hardship were the owner required to comply with all the applicable regulations of the Zoning

Resolution. In such cases, the Board of Standards and Appeals may grant variances from the use

and bulk provisions of the Resolution to the extent necessary to permit a reasonable use of the

parcel.

OPEN SPACE / OPEN SPACE RATIO In some districts, the amount of open space required is determined by the open space ratio

(OSR) which expresses the percentage of total floor area of a building that must be provided as

open space on a development parcel.

PARKING Zoning laws also require the provision of off-street parking for most new developments. Parking

on the site of a new development helps eliminate congestion on nearby streets.

USE GROUPS The uses permitted in each zoning district are found in one or more of eighteen use groups set

forth in the Zoning Resolution. The uses listed in each use group have common functional or

nuisance characteristics.

The use groups start with residential and community facility uses (Use Groups 1-4) and worktheir way up from local retail and service uses (Use Groups 5-9) to regional shopping

centers/amusement uses (Use Groups 10-12), waterfront/recreation uses (Use Groups 13-15),


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heavy automotive service (Use Group 16) and manufacturing uses (Use Groups 17 and l8). The

text identifies which use groups are permitted in each zoning district.

THE ULURP PROCESS Actions Requiring ULURP

Changes to the City Map Mapping of subdivisions or platting of land into streets, avenues or Public Places Designation or change of zoning districts Special Permits within the Zoning Resolution requiring approval of the City Planning

Commission (CPC

Contd Site selection for capital projects Revocable consents, requests for proposals and other solicitations or franchises, and

major concessions

Housing and urban renewal plans and project pursuant to city, state and federal laws Disposition of city owned property Acquisition of real property by the city

ULURP Review Process Filing of Application Certification. Community Board Review Borough President Review City Planning Commission Review. City Council Review Mayoral Review THE OFFICIAL PLAYERS IN THE LAND USE ENTITLEMENT GAME

(1) elected local officials

(2) planning boards or commissions


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(3) the planning staff of the local government,

(4) staff members of other agencies

(5) area residents

(6) other unofficial players

Elected Officials Control Zone changes, general plan amendments and the environmental documentation accompanying them. Planning Boards or Commissions the first official say on many matters headed for the local legislature.

(e.g., zoning, plan amendments):

In many communities they also have the lastword on administrative or quasi.judicial . matters (subdivision approvals,

HI variances, conditional use permits, planneA unit developments) unless the city council or

board of supervisors accepts an appeal on the decision

First Steps in Performing Entitlement Due Diligence (1) talking with earlier applicants,

(2) studying the transcripts and files of similar cases -

(3) auditing public hearings on planning and zoning matters;

(4) reading local newspaper accounts of past planning controversies;

(5) reading the public conflict-of-interest disclosure forms where

required of local officials; and

(6) meeting with officials to discuss the specific project application

or their views on land use issues generally

Pay to Play .Developers donations purchase access, by which they mean the opportunity to discuss

their problems privately with the officials whose campaigns they helped finance

lawyers with political connections to the leadership were more successful in obtaining re-zonings than lawyers without traceable connections

MANAGING A LAND USE CONTEST Public Hearings


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Petitions Developer Strategy Opposition Tactics Developer Rebuttal Appeal By the Opposition DEALING WITH NEIGHBORS The Influence of Neighboring Homeowners Homeowners lack a legalentitlement to prevent zoning changes or new subdivisions, but

nonetheless often strongly influence the officials making those decisions

Legal Limits on Delegation of Public Authority to Homeowners Groups Advance Meetings with Neighboring Owners: the Pros and Cons Local elected officials appreciate and sometimes mandate developer efforts to defuse

potentially, explosive planning decisions. Even if efforts at compromise fail, the developer

learns the basis of complaints neighbors will likely air when the developer s case goes before

the planning commission or city council.

Bruce Ratner's challenge Reaching Enforceable Understandings Between the

Developer and the Neighbors

Written Contracts and Deed Restrictions for the Benefit of the Neighbors

Contract and Tort Enforcement of Developers Unwritten Promises

Community Benefits Agreements Community Benefit Agreements (CBAs) deals between developers and coalitions of

community organizations, addressing a broad range of community needs are safeguards to

ensure that affected residents share in the benefits of major developments. They allow

community groups to have a voice in shaping a project, to press for community benefits that aretailored to their particular needs, and to enforce developers promises.

Community Benefits Agreements Making Development Projects Accountablepublished byGood Jobs First and the California Partnership for Working Families,

As local governments grapple with their responsibility to shape development and land usepatterns, a new movement has emerged to challenge conventional thinking and offer a broader


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vision. This movement is centered on the concept ofcommunity benefitsthe simple

proposition that the main purpose of economic development is to bring measurable, permanent

improvements to the lives of affected residents, particularly those in low-income

neighborhoods. This new movement is pressuring the public sector to play a more strategic role

in land use planning and urban growth, in order to leverage its multibillion dollar investment in

the private sector toward creation of good jobs, affordable housing, and neighborhood services

that improve the quality of life for all residents.

Conditional Zoning The concessions agreed to by the developer can become specific conditions attached to the

developers rezoning, Planned Unit Development, Specific Plan, Conditional Use Permit or

Speda1Exception.

Development Agreements Local governments may enter development agreements either by authority of state statute or

through aggressive use of their zoning powers.

Developer Lawsuits Against Project Opponents Strategic Lawsuits Against Public Participation (SLAPP) Four criteria have been suggested for classifying an action as a SLAPP suit:(1) commencement of an action or interposing a counterclaim seeking monetary damages or

injunctive relief;

(2) filed against non-governmental individuals or groups;(3) as a consequence of communication to a governmental entity or the public;(4) on an issue of public interest.[ New York Law JUDGE DISMISSES ACTION, FINDS DEVELOPER SOUGHT TO CURB PUBLIC COMMENT 1/7/2009

N.Y.L.J. 1, (col. 3)

CitingCivil Rights Law 70-a,76-a, which says a plaintiff in a SLAPP suit must meet aheightened burden of proof to avoid summary judgment dismissing the action, thejudge

noted a plaintiff must demonstrate that its actionhas a substantial basis in fact or law or is

supported by a substantial argument for an extension, modification or reversal of existing

law.

Private Nuisance Actions Against Uses Allowed by Zoning
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Once the project is underway, or even after it has been completed, disgruntled neighbors caninitiate private nuisance claims for interference or disturbance of the use and enjoyment of

their homesteads.

CONTROLLING SUBDIVISIONS THROUGH THE SUBDIVISIONMAP ACT S

Subdivision regulations are land use controls that. govern the division of land into two or morelots, parcels, or sites for building

The Approval Process1. when the developer completes an application for a tentative map and submits it to the

appropriate local government agency. A tentative map (sometimes called a preliminary plat)

is a drawing detailing the design of project

2. Local governments can condition approval on the construction of roads, sewers and water

connectionsconditions which must be met before a final map can be recorded and sales

begin.

PAYING FOR PUBLICLY REQUIRED INFRASTRUCTURE IN NEW SUBDIVISIONS

THE FOUR WAYS TO FINANCE PUBLIC INFRASTRUCTURE The Government Pays The Developer Pays Owners of Benefited Property Pay Future Home Owners Pay DEVELOPER EXACTIONS IMPACT FEES are charges against new developments to defray a portion of the cost of basic

services and facilities local government provides to its citizens. Specifically, they take the form

of cash assessments, usually paid at the time a building permit is issued, to finance off-site

capital improvements such as roads, sewers, parks or schools necessitated by the new

development.

IMPACT FEES: OVERVIEW OF NEW YORK LAW 2/5/90 NYLJ 1, (col. 1) In Nollan v. California Coastal Commission,58 the U.S. Suprme Court restricted government

authority to impose conditions in the course of grantrng discretionary permits such as those

required to subdivide land;


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The Court affirmed a rule already widely applied by state courts, that th governmentdemonstrate a rational nexus between the condition or dedication requirement and the harm

likely to result from the proposed project without condition or dedication.


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CHOICE OF ENTITY WHAT FACTORS WILL PARTIES CONSIDER IN SELECTING A BUSINESS ENTITY? The primary factors include

protection of the owners of the business from debts, obligations and liabilities of thebusiness, and

achieving favorable tax treatment. Secondary factors include items such as

flexibility of management,

control,

simplicity, cost, transferability of interests, and ease of raising capital.

WHAT ARE THE SPECIFIC CONSIDERATIONS IN REAL ESTATE TRANSACTIONS?1.The nature of the particular real estate interest

2.The reasons for the acquisition of the real estate

3.The reasonable expectation that business objectives could change

4.The parties

5.The financial resources of the respective parties

6.The type of entity the parties are currently using and the possibility of conversion to another

form with or without adverse tax consequences

7.The importance of limited personal liability to one or more of the parties.

8.The particular tax status and tax objectives of the respective parties

9.The jurisdiction or jurisdictions in which the entity will operate.

CRITERIA IN ENTITY SELECTION


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Requirements to form and maintain the entity. How difficult and expensive is it to form and maintain such entity? If the entity will do business in more than one state, what additional costs are involved?

Will the entity require formal annual meetings? Will there be periodic reporting and/orsecurity laws compliance requirements?

2. Extent of owner/investor liability.

To what extent are each of the owners/investors prepared to have or share in personal liabilityfor the obligations of the entity?

3. Management and control. Who is to exercise day-to-day management responsibilities?

Who is to have ultimate control?

For instance, will borrowing money require investor approval?

Will this responsibility or authority change at various stages of the project?

4. Transferability of interest. How desirable will it be to limit or facilitate transferability of ownership interests?

5. Legal flexibility.

To what extent are the activities and agreements of the owners governed by statutoryprovisions?

Can the owners contract around these statutory provisions, and can the form of entity be easilyconverted to another?

6. Continuity of life.


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How important is it to the owners and/or managers that the entity have continuity of life?7. Methods to get money out. One of the most important factors to many owners is how they will be able to withdraw the

profits returned on their investment and/or their principal

8. Tax considerations.

Last, but by no means least, what is the tax treatment of the entity? Because of the desirability of avoiding double taxation, pass-through status is normally the

preference. Other tax concerns include the issue of whether and to what extent self-

employment taxes will be payable.

sole proprietorship sole proprietorship is a business owned and operated by a single person. Formation. A sole proprietorship comes into existence when the proprietor first uses property

or offers services in the conduct of a trade or business. no formal requirements to form a sole

proprietorship, and no annual filings are required.

Tax Treatment. A sole proprietorship is not a separate entity for tax purposes. The proprietorreports all items of income, gain, loss, deduction and credit on Schedule C of his or her personal

income tax return.

Liability. The owner is entitled to all of the profits and, likewise, is responsible for all of thedebts. Notably, the sole proprietor has unlimited personal liability for acts of employees andobligations of the business.

Tenancy In Common Tenancy In Common A tenancy in common is not a partnership, nor are other forms of joint ownership ofproperty,

such as joint tenancy and tenancy by the entireties.F.S. 620.8202(3)(a).

is a specific type of concurrent, or simultaneous, ownership of real property by two or moreparties.

All tenants in common hold an individual, undivided ownership interest in the property. Thismeans that each party has the right to alienate, or transfer the ownership of, her ownership

interest. This can be done by deed, will, or other conveyance.

tenants in common may hold unequal interests. General Partnership
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A general partnership is an organization composed of two or more persons formed for thepurpose of conducting a business for profit.

Formation. The partnership may be organized by an agreement that is written, oral, or implied. It is possible to inadvertently form a partnership. Interstitial Statutes In the absence of written partnership agreement, the general partnership is governed by

statute.

Tax Treatment. Although a partnership is not a separate legal taxpaying entity, it neverthelessfiles a tax return for informational purposes to report its income or losses, and to report each

partner's share ofpartnership income and deductions.

Liability. Each partner is jointly and severally liable for all debt and obligations of thepartnership. On dissolution of a partnership, a creditor of the partnership whose claim is not

satisfied in full can sue any or all of the partners to obtain satisfaction of the claim.

LIMITED PARTNERSHIPS A limited partnership is a partnership comprised of one or more general partners who operate

and manage the business, and one or more limited partners who do not actively participate in

the operation or management of the business and do not have personal liability for the

obligations of the partnership (except in respect of certain distributions from the partnership

and situations where the limited partner manages).

Formation A limited partnership is formed by filing Articles ofLimited Partnership with the state. The rights of the partners with respect to management and financial matters may, but

need not, be set forth in a partnership agreement.

Aspects of the relationship not covered by the partnership agreement are prescribed bystatute.

Formation contd The name of a limited partnership must contain the words "limited partnership,"

"limited," "L.P.," or "Ltd."


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A limited partnership must file an annual report in order to remain in good standing.

The limited partnership automatically dissolves upon death, bankruptcy or withdrawalof a partner, unless continued by a vote of the remaining partners; its duration is

limited to a fixed number of years. Thus, formation can be costly and technical

depending upon the arrangements of the parties.

Formation Contd A limited partnership can exist for any term,F.S. 620.108(1)(e), but the death,

withdrawal, or incapacity of an individual general partner or dissolution of a

corporate general partner dissolves the partnership unless the remaining

general partners, if any, continue the business under a right to do so as provided

in the agreement, or

all remaining partners agree in writing to the continuation of the business. TheFlorida statute provides for a 90-day period within which all partners may agree

in writing to continue the business of the limited partnership and to appoint

one or more additional general partners as necessary or desired.F.S.

620.157(4).A corporation, on the other hand, is not dissolved by the death or

retirement of its officers or directors.

Tax Treatment. The tax treatment of a limited partnership is essentially the same as the taxtreatment of a general partnership.

The parties may create classes of capital with varying characteristics and create complicatedprovisions for the allocation of profit and loss.

Liability. As long as limited partners do not take part in the management of the business, theywill not be personally liable for the debts and obligations of the limited partnership.

General partners in a limited partnership are jointly and severally liable for all debts andobligations of the limited partnership, just as general partners in a general partnership.

LIMITED LIABILITY PARTNERSHIP.

The limited liability partnership is a general partnership that combines the flexibility of atraditional partnership with limited liability for partners similar to a limited liability company.

Formation
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Formation. A limited liability partnership is formed by an oral or written agreement among thepartners, and by filing a registration.

A limited liability partnership must comply with certain statutory registration and disclosurerequirements. The most likely use of a limited liability partnership will be in the professional

service area when professional corporations or limited liability companies are not available ordesirable.

Formation contd The registration statement that must be filed with the Department of State sets forth

specified information about the partnership and its partners.

Annual reports must be filed. The name of a limited liability partnership must include the name "limited liability

partnership" or must contain the initials "L.L.P." or "LLP."

Tax Treatment. A limited liability partnershipis basically a general partnership and is therefore taxed

the same as a general partnership.

Liability As long as the statutory filings are made, the partners of a limited liability partnership

are not personally liable for the partnership's debts or obligations.

However, a partner in a limited liability partnership providing professional servicesmay still be personally liable with respect to such services,but will not be liable for

the professional services rendered by a fellow partner.

Corporations A corporation is formed by filing the articles of incorporation with the Secretary of State, paying

the charter tax and filing fee, issuing stock, adopting bylaws, and electing directors and officers.

The corporation has a separate existence from its shareholders. Interests are readily transferable.

Shareholders have limited liability.


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The corporation is taxed as an entity.

The corporation has perpetual existence (i.e., the death of a shareholder does not terminate thecorporation's existence).

Corporate management is centralized. C CORPORATION A corporation is a legal entity for and pursuant to state statute that exists separately from, and

independent of, its owners.

A corporation has most of the same powers, rights and duties as a natural person. Thecorporation is the most common form of doing business.

Formation A corporation is formed by filing Articles of Incorporation with the Department of State.

The Articles of Incorporation set forth specified information about the corporation and aboutthe stock it is authorized to issue.

The management structure and financial and voting rights of the shareholders are typicallyembodied in bylaws or shareholder agreements.

Formation contd Management of a corporation is centralized in a board of directors elected by the shareholders. Officers are appointed by the board of directors in accordance with the bylaws of the

corporation.

The organizers should consider if a shareholder agreement is advisable. SHAREHOLDER AGREEMENT such as restrictions on transferability of stock; voting of stock;


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arbitration of disputes;

buyout of stock on death,

incompetence, or

withdrawal of a shareholder from the business; or

purchase of life insurance to fund a buyout. Tax Treatment A regular or C corporation is subject to federal and state income tax as a taxable entity separate

and apart from its owners (i.e., shareholders).

The net income of a C corporation is therefore taxed twice. Items of income and deduction do not flow through a C corporation to the shareholders. Liability Neither the shareholders nor the officers or members of the board of directors of a

corporation are personally liable for the corporation's debts or obligations, unless they have

personally guaranteed those obligations or unless the corporate "veil" can be "pierced."

Piercing the Corporate Veil First, ifthere is such a unity of interest and ownership that the separate personalities of the

corporation and the individual no longer exist. That is, if the corporation is in fact the "alter

ego" of one or a few individuals.

Second, if the observances of the corporation as a separate legal entity would sanction afraud, promote injustice or if an inequitable result would follow.

Piercing the Corporate Veil contd Some of the factors that will be examined to determine whether there is a unity of interest and

ownership between the corporation and the individual include


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whether corporate formalities were observed, whether corporate assets were used for the personal benefit of the individual, whether corporate and personal funds were intermingled, and whether the individual respected the corporation as a separate legal entity.

SUBCHAPTER S CORPORATION An S corporation is a corporation that has filed a Form 2553 with the Internal Revenue Service

(IRS) and has otherwise satisfied the requirements to be taxed under subchapter S of the

Internal Revenue Code.

A subchapter S corporation is a corporation that, by complying with certain requirements of theInternal Revenue Code, avoids the double taxation problem of regular corporations, and istaxed more like a partnership than like a regular corporation.

FORMATIONA subchapter S corporation is created the same way that a regular C corporation is created.

In addition, the corporation must file with the Internal Revenue Service a completed Form 2553,Election by a Small Business Corporation.

All shareholders of the corporation must consent in writing to the subchapter S election.

The election, together with written shareholder consents, must be filed with the InternalRevenue Service on or before the 15th day of the third month of a taxable year in order for the

election to be effective during that tax year. If the election is not timely filed, or if the

corporation did not meet all of the requirements for being a subchapter S corporation at all

times during the year for which the election is filed, the election would not be effective,

although it might be effective for the following tax year if the corporation then qualifies.

The subchapter S is effective until it is terminated or until a disqualifying event occurs.

Generally, a subchapter S corporation

Must be an eligible entity (adomestic corporation, or alimited liability companywhich haselected to be taxed as a corporation).
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Must have only one class of stock. Must not have more than 100 shareholders. [Shareholders must be U.S. citizens or residents, and

must be natural persons, so corporate shareholders and partnerships are generally excluded.

However, certain trusts, estates, and tax-exempt corporations, notably501(c)(3)corporations,

are permitted to be shareholders.

Profits and losses must be allocated to shareholders proportionately to each one's interest inthe business.

Some states such as New York and New Jersey require a separate state-level S election in orderfor the corporation to be treated, for state tax purposes, as an S corporation.

Furthermore, if more than 25% of a S-corporation's gross receipts consists ofpassive incomeforthree consecutive years when the corporation has accumulated earnings and profits, the S

corporation will automatically lose its subchapter S status and revert to being a regular C

corporation.

Tax Treatment The subchapter S corporation files an information tax return, and each shareholder separately

accounts for his or her allocated share of items of income and deduction.

Distributions to shareholders are generally nontaxable unless the corporation hasaccumulated earnings or profits from a pre-election period.

A shareholder's proportionate share of flow through losses can only be used to offset incomefrom other sources to the extent of the shareholder's basis in his or her stock.

LIABILITY Shareholders of a subchapter S corporation enjoy the same protection from liability for the

debts and obligations of the corporation as shareholders of a regular C corporation.

LIMITED LIABILITY COMPANY LIMITED LIABILITY COMPANY A limited liability company (LLC) combines some of the features of a partnership with some

features of a corporation. An LLC has the tax advantages and operational flexibility of a general

partnership, together with the limited liability protection of a corporation. The LLC is a

separate legal entity which is organized by two or more persons.

Formation
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A limited liability company is formed by filing Articles of Organization with the Department ofState.

The Articles of Organization are very similar to Articles of Incorporation filed to create acorporation.

The limited liability company also must adopt an operating agreement, which have a functionsimilar to the bylaws of a corporation or the terms of a partnership agreement.

The owners of a limited liability company are called "members." An annual report must be filed each year with the Division ofCorporations and Commercial

Code.

Fewer formalities are required to set up and operate a limited liability company than acorporation. Although company minutes and resolutions are not required by statute, they are,

nevertheless, a good idea.

Unless otherwise provided in the articles or the regulations, management of the limited liabilitycompany is vested in the members in proportion to their contributions to capital.

if so provided in the articles, the limited liability company may be managed by one or moremanagers elected annually by the members in a manner prescribed by the articles orregulations.

Like subscribers to stock in a corporation, the members' contributions to capital of a limitedliability company may be in cash or property, a promise to contribute cash or property, past

services rendered, or future services to be rendered.

The interest of a member in a limited liability company is personal property. A member's interest, however, is not freely transferable without the consent of all other

members unless transfer is allowed by the articles or regulations.

The death, bankruptcy, or dissolution of a member, or the occurrence of any event terminatingthe continued membership of a member under the regulations or operating agreement,

dissolves the limited liability company, unless all of the remaining members consent to the

continuation or a right to continue is stated in the articles of organization.

Tax Treatment


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A limited liability company is taxed like a general partnership. Items of income and deductionflow through to the members, and may be specially allocated by agreement among the

members.

Liability Neither the members nor the managers of a limited liability company are personally liable for

the debts or obligations of the company.

However, the limited liability may not be recognized with respect to transactions in states notyet recognizing limited liability companies, or in states whose limited liability statutes differ.

Unless otherwise provided in the Articles of Organization, any member has the power to bindthe company.

Because the liability protection of members is conferred by statute, and because fewerformalities are required with a limited liability company than with a corporation, it is arguably

more difficult to "pierce the veil" of the limited liability company to hold members personally

liable.

business trust is an unincorporated association created by a governing instrument under whichproperty is held, managed, administered, controlled, invested, reinvested and/or operated, or

business or professional activities for profit are carried on, by a trustee for the benefit of such

persons who are entitled to a beneficial interest in the trust property. The beneficiaries of a

business trust should have limited liability.

joint venture A joint venture is a general partnership organized to carry out a limited or specific purpose. Allocations of profits and losses, duties of the co-venturers, and other elements of the

venture should be spelled out in the joint venture agreement.

WHAT IS A REIT? REIT stands for Real Estate Investment Trust. A REIT is a company that owns and usually

manages income-producing real estate property such as apartments, offices, and industrial

space. Along with meeting additional criteria, to qualify as a REIT in the United States, the

company must:

Be structured as Corporation, business trust, or similar association Be managed by a board of directors or trustees Have shares that need to be fully transferable pay at least 90% of itstaxable incometo its shareholders every year.
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have at least 100 shareholders. invest at least 75% of itstotal assetsin real estate. derive at least 75% of its income from rent or mortgageinterest from properties in its portfolio. No more than 50 percent of the shares can be held by five or fewer individuals during the last

half of each taxable year

By having REIT status, a company avoids corporate income tax. A regularcorporationmakes aprofit and pays taxes on the entire profits, and then decides how to allocate its after-tax profits

between dividends and reinvestment; an REIT simply distributes all or almost all of its profits

and gets to skip the taxation.

Types of REITs MORTGAGE REITS Fewer than 10% of REITs fall into a special class called mortgage REITs. These REITs make loans

secured by real estate, but they do not generally own or operate real estate

EQUITY REIT Equity REITs tend to specialize in owning certain building types such as apartments, regional

malls, office buildings or lodging facilities. Some are diversified and some are specialized

Hybrid REITsHybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing

in both properties and mortgages.
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The Acquisition Contract Real Estate Transaction Time Line

Pre-contract negotiations Executory Contract Closing Post-closing

The Pre-Contract Stage: -- The Preventive Lawyering Stage What information should the attorney be gathering? 101 West 55th Street C6-6 Letters of Intent What are they? What are the dangers of a Letter of Intent? What are the dangers of a Letter of Intent? In short, the court is looking at the actions of the parties leading up to the writings. If it is

clear from the writing that the essential elements of the deal have been reached but may not

be artfully written; and that there is no express written statement that material elements

remain which must be formalized in a final written contract, then the writing will be sufficient.

The Executory Contract Stage The Executory Period Time is a problematic element in this transaction. The longer the time horizon on a

transaction, the more difficult it is to assess the potential value of the end deal. Time creates

contingencies:

Macro-economy Discovery of environmental problems or the creation of the

problem

Changes consumer tastes and desires Death or bankruptcy of a partner to a transaction Property damage


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The Closing or Settlement The Post-Closing Period The deed must be recorded, title insurance policies must be received and closing documents

collected

What issues need to be addressed in the Contract What are the elements of a contract? I. A promise by a person with legal capacity to act, 2. Two or more parties, 3. Manifestation of mutual assent to terms and consideration, 4. Sufficient consideration, and 5. An agreement that is not void by statute or common law. What is necessary to satisfy the statute of frauds? GENERAL OBLIGATIONS LAW 5-703 disclose the names of the parties who are parties to the contract, adequately describe the land or property to be sold, provide the essential terms of the agreement, and It must be executed by the party against whom the contract is to be enforced or by an agent

authorized by that party.

essential terms 1. The price, or a formula that can be used in determining the price (for example,

appraised value);

2. The closing date or specific conditions precedent after the satisfaction of which closingwill occur; and

3. The method of payment (for example, cash, seller financing, the assumption of existingdebt, and so forth).

There must be a grantor and grantee. How do you know both exist? What is required when dealing with a corporation or partnership?

copy of the corporate charter


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a certificate of good standing evidence of authority to do business in the state current certification of the authority of the officers to buy and sell

property

corporate resolutions regarding this transaction A correct description of the purchasing entity is important

Is this acceptable? PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (this Agreement), dated ____________, ____, 200, by and

between ABC, LTD., a Florida limited partnership (Seller), and Z (Buyer).

LEGAL CAPACITY how do we determine that the person signing on behalf of the entity has the authority to bind

the entity? Finally, how do we determine that the entity entering the contract as the seller is, in

fact, the owner of the property?

Procedural steps First, a title report should be ordered rightaway Second, the seller should supply copies of its organizational documents Third, if an agent purports to act for the seller or the buyer, the agent should have a written

agency agreement that specifically authorizes it to bind the seller or buyer.

Fourth, the buyers attorney should check the state laws for statutory requirements governingasset sales.

Finally, individuals who have been declared incompetent and individuals or entities that arein bankruptcy or reorganization proceedings3 cannot act without court authority

The recital in the contract, signed by the foregoing officers, that the corporation executed aninstrument pursuant to its bylaws or pursuant to a resolution of its board of directors, is primafacie evidence of authority and conclusive evidence in favor of a bona fide buyer. Cal. Corp.

Code 1190 (West 1981).

Property DescriptionHow do you describe the property?


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Whats missing? 2.1 Property. Subject to and upon the terms and conditions of this Agreement, Seller shall sell to

Buyer and Buyer shall purchase from Seller all of the following (collectively, the Property) at

the price set forth in this Agreement:

(a) the Land; (b) the Improvements; (c) the Appurtenances; (d) the Personal Property; and (e) the Leasehold Property. Property Description the property should be as accurately described as possible, either by legal description or by

reference to a plat that can be attached to the contract.

Describing the property What is the role of the survey? Who should demand the survey? Who can rely on the survey?

Who wants the title search?

Describing the property Multiple Properties

In contracts involving the purchase of multiple properties in a single transaction,whether the purchase and sale agreement is set forth in one contract or in multiple

contracts, the drafter should consider the effect of voluntary or involuntary termination

of the contract as to some, but not all, of the properties.

Are the properties contiguous? What are strips and gores? A strip is a long narrow piece of land, and a gore is a triangular piece of land. Condition of the Property 2.2 As Is Condition. Seller agrees to deliver and Buyer agrees to take (without reduction of the

Purchase Price) title to the Property on the Closing Date in its as is condition on the date

hereof, ordinary wear, tear and deterioration between the date hereof and the Closing Date


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excepted. Buyer represents to Seller that Buyer is a knowledgeable buyer of real estate

properties. Buyer has previously reviewed and considered the nature of this transaction and

the Due Diligence Period will enable Buyer to thoroughly investigate the Property and all

aspects of the transaction. In electing to proceed with this transaction, Buyer shall have

determined that the Property is satisfactory to Buyer in all respects and is purchasing the

Property in as-is, where-is condition with all faults. Buyer has relied and will rely solely on

Buyers own independent investigations and inspections, and Buyer has not relied and will not

rely on: (i) any representation of Seller other than as expressly set forth in this Agreement (and

provided that Buyer understands and agrees that none of the representations of Seller shall

survive the Closing nor are intended to be relied upon by Buyer after Closing except as expressly

provided herein), or (ii) any information, representations and/or warranties contained in any

marketing materials or offering memoranda for the Property (including, without limitation, any

such information, materials or memoranda delivered or provided by MMM. Buyer further

acknowledges and agrees that, except for the specific representations made by Seller in this

Agreement, Seller has made no representations, express or implied, is not willing to make any

representations, nor held out any

inducements to Buyer other than those (if any) exclusively set forth in this Agreement; and

Seller is not and shall not be liable or bound in any manner by any express or implied warranties,

guaranties, statements, representations or information pertaining to the Property, except as

may be specifically set forth in this Agreement. Notwithstanding anything to the contrary

contained in this Agreement, the provisions of this paragraph shall survive the Closing and any

cancellation or termination of this Agreement.

What are the issues with this provision regarding the condition of the property?

Condition of the Property Primarily this is an issue of soundness of improvements, the environmental safety of

improvement to the land and impacts from neighboring land, and the availability of amenities

and utilities and access

Express Allocations of Risk of Quality An as is provision ordinarily bars the admissibility of any evidence regarding quality unless it is

to show fraud. To do this the plaintiff must show by clear and convincing evidence that:

A representation has been made The representation is false The representation is material The speaker knows that it is false


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The speaker intends for the hearer to rely on the false statement The hear could reasonably anticipate to rely on the statement Consequent injury

Express Allocations of Risk of Quality Impact of a merger clause The general rule is that the vendor has no duty to disclose unless there are hidden defects

which he knows or should have known which may present an unreasonable risk of harm to

persons on the premises which he may anticipate that the vendee will not discover.

Disclosing Inaccurate Information Material Defects and Duty to Disclose The Court in found in COPELAND v NATHANIEL 164 Misc.2d 507, 624 N.Y.S.2d 514 (1995)that

in New York, a party has duty to speak in three situations:

One where the party has made a partial or ambiguous statement on the theory thatonce a party has undertaken to mention a relevant fact to the other party and can not

give a half truth;

Two the party stand in a fiduciary or confidential relationship with each other; Three where one party superior knowledge no readily available to the other and

knows that the anther is acting on the basis of mistaken knowledge.

Statutory Duties to Disclose Interstate Land Sales Full Disclosure Act Implied Duty to Disclose General rule is that there is no duty to disclose material facts about the subject matter of a

sale unless a specific exception exists. The law has developed that latent defects do give rise

to a duty on the part of the seller to make disclosure. More especially, when latent defects

are combined with misrepresentations or concealment, then there can be a recovery for

fraud.

Fraudulent concealment exists where a vendor fails to disclose sources of peril of which he isaware, if such a source is not discoverable to the vendee.

What should the buyer seek to obtain in a commercial real estate transaction? The seller should be required to deliver within a specified period of time:


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Title leases, agreements, surveys, plats, site plans, zoning documents, and any other information that may be relevant to the buyers decision to purchase the

property.

Inspections The buyer should have the right to enter onto the property for purposes of undertaking tests

and inspections

The Sellers perspective From the sellers standpoint, the contract should clearly delineate the extent of the

investigation that the buyer will undertake. The seller may be willing to allow a potential

buyer to undertake environmental testing or even to attempt to secure financing, but may be

unwilling to let the buyer tie up the property without any commitment to at, least spend

money on advancing the deal.

Duration of the inspection period Zoning Due Diligence The zoning classification will therefore control the height, density, and use to which the building

can be put.

The zoning statute will establish standards for parking, storm water management, grading, landscaping,

The certificate of occupancy


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Building Operations - Leases The buyer wants to know that

the leases are in effect, that there has been no prepayment of rent, that other monetary obligations of the landlord/seller are complete, and that the landlord/seller is not in default in its obligations to the tenants.

ESTOPPEL CERTIFICATES 7.2 Conditions Precedent to Buyers Obligation to Close (d) On or before the Closing Date, Seller shall have furnished a Tenant Estoppel Certificate

from each tenant of the Property, each dated no earlier than thirty (30) days prior to the ClosingDate;

ARTICLE 8. SELLERS REPRESENTATIONS AND WARRANTIES. Seller makes the following representations and warranties for the benefit of Buyer:

.

8.2 Leases. To the best of Sellers knowledge, Schedule 1 is an accurate and complete list ofall leases and amendments thereto which have been executed by Landlord on the date hereofand all other agreements by Landlord with the tenants relating to the occupancy of the premises

including tenant improvements agreements; and to the best of Sellers knowledge the

information contained in Schedule 1 is accurate and complete as of the date hereof, and to the

best of Sellers knowledge, each of the Leases is in full force and effect, and neither Seller nor. to

the best knowledge of Seller, any of the tenants are in default of any of their obligations under

any of the Leases, except as set forth in Schedule 1.

SNDAs subordination, nondisturbance, and attornment agreements Building Operations Employment Agreements employment agreements, union contracts, bonuses,


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profit sharing, retirement, vacation benefits, or hospital insurance plans with respect to past or present employees. Building Operations - Equipment Building Conditions - Commitments to Third Parties It is therefore typical to include in a contract a representation that the property and the seller

(with respect to the property) are subject

only to specified contractual commitments that are listed on an exhibit to the contract and that there are no defaults under any agreements, contracts, or commitments. Building Conditions - Fire and Building Code Violations ARTICLE 8. SELLERS REPRESENTATIONS AND WARRANTIES. Seller makes the following representations and warranties for the benefit of Buyer: 8.1 Ordinances. To the best of Sellers knowledge, Seller has not received any written

notices of outstanding violations of any applicable laws, ordinances, rules, regulations or orders

relating to the Property.

Building Conditions - Environmental Conditions Title ARTICLE 6. TITLE. 6.1 Conveyance of Title. At the Closing, Seller shall convey and Buyer shall accept fee simple

title to the Property (except the Appurtenances) free and clear of all liens and encumbrances

except the Permitted Exceptions. Seller shall convey and Buyer shall accept any and all right,

title and interest of Seller in the Appurtenances in accordance with the terms and conditions of

Section 12.2(b).

Title Marketable Title The starting point is that the purchaser wants marketable title:


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title with the quality of indefeasibility One free from encumbrances and from any reasonable doubt as to its validity. One that may be freely made the subject of resale. Title to real property that is readily saleable to an interested, reasonable, prudent,

intelligent buyer at market value.

WHO DETERMINES QUALITY OF TITLE THAT PURCHASER MUST ACCEPT? Title It is common to provide in the contract that the seller shall convey at closing fee simple title to

the property, marketable and good of record and in fact, and insurable as such at standard rates

by a title insurance company acceptable to the buyer. Title must be free and clear of any liens,

encumbrances, or restrictions except for the lien of real estate taxes that are not yet due and

payable and title objections that have been approved in accordance with the procedures set

forth in the contract.

Title Insurance The extent of coverage that the title insurance company provides is not necessarily cast in stone.

Title insurance companies may be willing to issue special endorsements to cover particular

concerns of the buyer or the buyers lender. Obviously, the company will be more willing to

negotiate the coverage when the amount of the policy is very large.

Title Objections 6.3 Title Objections. (a) If any title defects or encumbrances appear in the Commitment or the Survey, other

than the Permitted Exceptions (Title Objections), Buyer may reject title by giving notice of

such rejection to Seller (Buyers Rejection Notice) on or before the Inspection Deadline Date,

which notice shall specify the alleged Title Objections. Buyers failure to timely give such notice

shall be deemed an election by Buyer to waive such alleged Title Objections, and Buyer shall

thereupon take and accept title to the Property as is. If Buyer shall so reject title, Seller shall

have the right in Sellers sole and absolute discretion subject to Section 6.3(g) below, upon

notice to Buyer given not more than ten (10) business days after receipt of Buyers RejectionNotice, either to cancel and terminate this Agreement, in which event both parties shall be

relieved of all obligations hereunder except for Buyers obligations under Article5 or to adjourn

the Closing for a period or periods not exceeding ninety (90) days in the aggregate, during which

time Seller may endeavor to cure such Title Objections.

Title Objections


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If there is a title objection that the seller refuses to cure, the buyer will contend that the buyershould have the option of

Correcting the title objection if the title objection can be corrected by the payment ofmoney and proceeding to closing, with a deduction from the purchase price in the

amount required to cure the objection,

Accepting the title as it is (assuming that the objection cannot be cured with apayment), or

Terminating the Agreement The buyer would also like the seller to be obliged to litigate if necessary to clear title.

Need for a Survey? 6.2 Title Commitment and Survey. Buyer shall after the date hereof order a commitment (the

Commitment) for an ALTA Owners Policy of Title Insurance for the Property from the Title

Company and shall deliver the same to Seller within seven (7) business days after the date

hereof. Buyer shall order a survey of the Property certified to Seller, Buyer, any mortgage lender

selected by Buyer (provided Buyers obligations under this Agreement are not in any way

subject to Buyers receipt of financing), and the Title Company (Survey), and shall cause copies

thereof to be delivered to Seller within five (5) days after receipt thereof by Buyer or its

attorneys and in any event no later than the Inspection Deadline Date.

Why a survey?

The existence of the property. Is the property a mathematically closed figure?

The rela

re develop and finance outline

Documents