Commercial Real Property Blueprint - Part 3: Leases, Assignments, Status Letters & Adjustments

You are under agreement and all necessary due diligence and permitting contingencies are completed. All that’s left is to gear up for closing, but…here is where the grind truly begins. Usually, a piece of existing commercial property comes along with existing tenants, easements, rights of way or a number of other possible circumstances which come with the property. These circumstances all need to be detailed and any adjustments or actions taken to be sure that the Purchaser and Seller are truly getting the deal they agreed to.

Leases and Estoppel Certificates

When a lender is involved, lender’s counsel will require to see all existing leases and a list of all rents due and or outstanding called a “rent roll”. In most circumstances a lender uses this information to underwrite a commercial loan. Also, it is important that the Buyer obtain this information so that they know what kind of income the property produces and the terms of such agreements. The lender will also require what are called Estoppel Certificates and Subordination Agreements to be executed by the tenants. This certifies the terms of the existing leases as well that the Tenants will subordinate to the lender in the event of a default.

Status Letters, Releases and Adjustments

Obviously, in any transaction a Lender and Buyer want assurance that the business or commercial property they are purchasing is not subject to any tax liens, and, if they are, this should be resolved prior to the closing. It is typical and necessary for Seller’s counsel to provide Tax Status letters and Tax Clearance Certificates from the DRS and to arrange for any required payoffs and lien releases. These steps may take longer than expected, so it is important that the process is initiated at the earliest possible time during the transaction.

Once the rent, property tax and any other detailed figures are determined, the parties must work together to form an adjustment sheet detailing certain debits and credits going to each side at the closing. Once these figures are agreed to and put in final form, the parties and the Lender will know exactly what amount of money will be exchanged and how it will be allocated at the closing table.

If you have any questions about commercial real estate, commercial transactions, or would like to speak with a qualified real estate and business law attorney, you can contact our law firm at (203) 651-5521, or if you would like to learn more about our firm, click here to visit our website.