SELLING COMMERCIAL REAL ESTATE IN MICHIGAN

INTRODUCTION


Selling a commercial real estate property in Michigan is a multi-step process that can involve a whole host of documents and agreements.


Most commercial real estate transactions involve: (i) a brokerage agreement; (ii) a letter of intent; (iii) a purchase and sale agreement; (iv) certain ancillary agreements; and (v) due diligence and financing periods.


Any party selling commercial real estate in Michigan should obtain the advice and counsel of an experienced real estate attorney as early in the transaction as possible. Working with an experienced real estate attorney will ensure that the agreements documenting the transaction are properly drafted and minimize the risk of legal issues arising at a later time.


BACKGROUND AND GENERAL CONSIDERATIONS


1.) Brokerage Agreement


If a seller is unable to find a buyer for its commercial real estate property on its own, it will typically engage the services of a commercial real estate broker.


There are various types of brokerage agreements, including exclusive agency agreements, exclusive right to sell agreements, and open listing agreements. The terms and conditions of each brokerage agreement will depend on the specific business terms agreed to between the seller and the broker and the nature of the commercial real estate property being sold.


Exclusive right to sell and exclusive agency agreements provide that the commercial real estate broker shall act as seller’s exclusive agent. On the other hand, an open listing agreement allows the seller to contract with more than one commercial real estate broker for the sale of its commercial real estate property.


Key provisions in a brokerage agreement generally include, among other things: (i) a description of the property; (ii) term and any applicable extensions; (iii) commissions / fees; (iv) timing of payments; (v) owner and broker covenants; (vi) owner and broker representations and warranties; (vii) advertising; (viii) indemnification; and (ix) termination.


2.) Letter of Intent

A letter of intent is usually the first transactional agreement entered into in connection with the sale of a commercial real estate property.


A properly drafted letter of intent will indicate whether it is binding or non-binding, describe the basic terms of the proposed transaction and set the expectations of the parties prior to expending the time, cost and energy drafting and negotiating a purchase and sale agreement.


Although a letter of intent may be non-binding, certain provisions may be negotiated as binding between the parties, such as exclusivity and confidentiality.


3.) Purchase and Sale Agreement The length and terms of the purchase and sale agreement will depend on the size, type, and nature of the commercial property being sold, as well as the relative bargaining power of the parties involved in the transaction. A properly drafted purchase and sale agreement will, among other things, include provisions on: (i) purchase price; (ii) earnest money deposit; (iii) due diligence and financing periods, if applicable; (iv) closing conditions; (v) representations and warranties of the parties; (vi) indemnification; (vii) closing conditions and covenants; (viii) prorations; and (ix) closing costs. Purchase and sale agreements also include schedules, exhibits and ancillary agreements.


It is common for a buyer to ask for a period to conduct legal due diligence on the commercial real estate property and seek financing from a lender prior to consummating the transaction. Due diligence and finance periods generally range anywhere from 30 – 60 days and can either run concurrently or consecutively to each other.


Legal due diligence in commercial real estate transactions can be extensive or narrowly tailored. The nature and extent of a buyer’s due diligence investigation will depend on the size and type of the property being acquired and will usually include: (i) a review of the property’s leases and other agreements; (ii) a physical and environmental inspection of the property; (iii) title, survey and zoning review; and (iv) a review of the property’s financial information.


4.) ALTA Survey and Owner’s Title Policy


A property survey, such as an ALTA survey, will often be conducted prior to closing. A property survey will, among other things, confirm the property’s land boundaries and legal description, and identify any easements on the property. Property surveys are often long lead time items in a commercial real estate transaction and the process should be initiated as early in the process as possible.


In addition to a property survey, commercial real estate transactions often involve an owner’s policy and a lender’s policy. An owner’s policy protects a buyer's ownership interest in real estate if a past title or ownership issue comes up after the commercial real estate transaction. A lender’s policy is often required by a lender when a buyer is obtaining financing for a portion of the purchase and protects the lender if a past title or ownership problem arises after the commercial real estate transaction. Each title company will have certain requirements that must be met prior to issuance of such policies. These requirements are typically listed on a schedule to the commitment.


5.) Closing Documents


Closing documents will vary from one commercial real estate transaction to another, but key documents often include a warranty or quitclaim deed, a bill of sale, an assignment and assumption agreement, various certificates, tenant notices, tenant estoppels and SNDAs, and certain other documents and agreements that may be prepared by the title company involved in the transaction.


The attorney working on the commercial real estate transaction should prepare and periodically update a closing checklist to track the numerous documents and other items required for closing. This closing checklist should be shared with all parties involved in the transaction.


CONCLUSION

At Dawisha Law, PLLC, we work closely with clients who are selling commercial real estate and carefully and thoughtfully draft and negotiate transaction agreements to properly reflect a transaction’s business terms and achieve a client’s specific business objectives. If you are selling a commercial real estate property, contact us today and let us advise you throughout the process.

DeLone Dawisha

Principal and Founder

Dawisha Law, PLLC

248-904-5123

ddawisha@dawishalaw.com