By Edward Woodall

Let’s talk about our old friend Joe Fitnessbuff. After a long career as a gym owner, Joe is getting old, and he wants to sell his building, retire, and move to the beach. He’s heard from friends that he doesn’t even need an attorney to do that. But is that true?

What An Attorney Can Do for You

Sellers of commercial real estate sometimes think they can rely on their broker and the buyer’s attorney to guide a transaction to closing. While that may be technically true, in this blog post we’ll explore how an attorney representing a seller can add value and advocate for their client’s best interests at every step of the process.

The Listing Agreement

Joe starts by contacting a real estate broker he knows to discuss his gym property. Together, Joe and the broker tour the property and compare it to other properties that have recently sold in the county. Joe and the broker decide to work together to sell the gym. Now it’s time for Joe to sign the listing agreement. Most sellers do this before engaging an attorney, and that’s usually fine. But a good attorney can help a seller sand off the rough edges on a listing agreement—things like whether any commission is payable if the closing falls through, or how long the exclusivity period is if the seller is dissatisfied and wants to change brokers. Sometimes, buyer’s agents will also try to have property owners sign nondisclosure agreements or similar documents containing unacceptable provisions, and an attorney can help with that too.

The Letter of Intent

Once Joe signs his listing agreement, his broker works hard to get buyers lined up. Joe has done a great job taking care of the property, and it’s in a prime location, so there’s a lot of interest. Pretty soon, a buyer has submitted a letter of intent to establish the essential terms of her offer to purchase Joe’s gym. This is, again, a part of the sales process that lots of sellers handle on their own, or with just a broker to advise them. But on more complex deals, letters of intent can contain confusing, conflicting, or counterproductive provisions. As timelines and contingencies proliferate, a seller needs to consult with an attorney to keep things straight. A seller’s attorney can also advise on issues like tenant estoppel certificates or title insurance and survey questions to make sure that the letter of intent is consistent with customary diligence processes in the state in which the property is located, or with the unique characteristics of the property.

The Purchase and Sale Agreement

Now that Joe and his buyer have signed their letter of intent, it’s time to draft and sign a purchase and sale agreement (PSA). In many transactions in North Carolina,  particularly those in which the seller has not engaged an attorney, the PSA will be prepared using one of the standard forms approved by the North Carolina Bar Association and the North Carolina Association of Realtors. These are good forms—they’re fair and balanced, and they’re drafted so that the brokers can just fill in the blanks and produce a binding document. But they do have their limits. Brokers cannot draw up custom, made-to-order language to best suit their clients or the particular contours of the deal. By hiring an attorney to help draft the PSA, Joe can address any or all of the following issues to his advantage:

• Limiting the representations and warranties of the seller, or tailoring them to the situation;
• Precisely defining what type of deed will be provided at closing, and limiting a seller’s liabilities and obligations in connection with the deed;
• Correctly defining the property;
• Limiting a buyer’s ability to terminate the PSA, or ensuring that the earnest money deposit is disbursed to the seller if the PSA is terminated later; and
• Incorporating special provisions from the letter of intent.

A good attorney can also help sellers like Joe navigate the due diligence process. Most of the diligence work falls on the buyer, but sellers often have to answer questions or provide notices regarding title, survey, or lease issues, and Joe will need a lawyer to help with that.

The Deed and Other Closing Documents

After the PSA is signed and the diligence process draws to a close, it’s time to close. At closing, Joe needs to provide a deed and several other documents. While it is ethically permissible for a buyer’s attorney to sign a non-engagement letter with a seller and prepare the closing package, their primary responsibility will be to represent the buyer, not the seller. Joe will need someone in his corner to prepare the closing documents to his benefit and to advise him on what he should or should not do, say, or sign at closing. By engaging an attorney for the closing, Joe can ensure that the deed does not contain broader warranties than he agreed to make, and he can make sure he doesn’t sign any affidavits, bills of sale, assignments, or other documents that are unnecessary, contain factually incorrect statements, or expose him to unnecessary liability.

Conclusion

As we’ve explored, retaining an attorney early in the process of selling commercial real estate can provide real benefits. Competent legal representation can help make deals proceed as smoothly and as beneficially as possible. For Joe, it could be the difference between successfully completing the sale of his gym and enjoying a long retirement and being stuck for years trying and failing to sell a property he doesn’t want to own and maintain any longer—or worse, spending his golden years embroiled in litigation.

Edward B. Woodall is an attorney at Venn Law Group who works incorporate law and commercial real estate, including leasing, financing, taxation, business structures, and dispute resolution. He is passionate about helping business owners solve a variety of complex legal problems and has performed more than 100 hours of pro bono work. In addition to his law degree, he also has a background in history and Spanish.