In my twenty years in tenant representation, I have brokered numerous building purchases and sales. In most of these transactions, both sides have sophisticated attorneys drafting purchase and sale agreements, title companies working out closing details and bankers focusing on the exchange of funds.
However, I have found that there are some very specific areas that are often overlooked. This is my top five:
1. Transfer of property management. Does the building currently have a facility manager or management company? If so, what is the term of their contract and is it transferable or terminable? How much notice is required for either?
2. Security systems. This is a big problem in retail bank sales. Government privacy regulations often require all such security systems to be wiped completely clean. At one banking client of mine, this meant taking a magnet to the security system. This is not conducive to reuse of the system. Is the buyer aware of this?
3. Insurance. Is the buyer covered for liability during any due diligence they conduct on site? Do both the buyer’s and seller’s insurance companies realize that the asset is changing hands? No one wants to have an asset with no coverage. Similarly, no one wants to pay for coverage on an asset they no longer own.
4. Leases. As many sellers have learned the hard way, working out tenant issues at the time of sale is a struggle. Do not wait until you are asking a tenant to sign an estoppel certificate to ask them if there are any problems with their tenancy. Resolution of significant problems can and will hold up a sale.
5. Leases, part two. If you are a buyer, read every word of every tenant lease. Otherwise, there may be an exclusivity provision or signage stipulation of which you are unaware.
If you have learned some other lessons you are willing to share, I would love to see your comments below.