Related: 10 Questions to Ask the Current Owner Before Buying Their Business
When it comes to M&A land sale agreements, start early
Real estate review can be time-consuming, so start early in the process. Consider the value of real estate in the overall transaction:
- Is it the main focus? i.e. a retail store or the seller’s largest asset
- Is it significant but not all-important to the deal? For example, the transaction might include a main headquarter office or a plant, but the other real estate holdings may be less valuable or integral to the company’s operations.
- Is it just a fraction of the company’s value? i.e. a small office space or leased space
Assess the property obligations
Find out what the seller’s obligations are on the property in question. Is it a lease or a deed? Is there money owed? Find out about titles, easements and encumbrances, surveys, zoning and environmental concerns, which could become liabilities after closing. This is usually handled in the Representations and Warranties portion of the agreement, which requires the seller disclose the full condition of the real estate.
Carefully consider an environmental review
Obtaining a full environmental assessment is an important way to ensure a property is not in violation of any federal, state or local environmental regulations. Buyers can use this as a negotiation tool, as well as outline their plans to correct any environmental concerns if the seller is unable or unwilling to. By obtaining the assessment and documenting any mitigation plans, the seller has a stronger defense for potential lawsuits down the line.
Include a risk of loss provision
A risk of loss provision is typical in M&A contracts involving real estate, and specifies which party bears the risk of loss for the land or property in the event of damage or destruction that might occur before closing.
Understand the transfer taxes and sales taxes
Many jurisdictions charge a transfer tax when real property is sold or when the deed is recorded. There will be sales tax due on any included personal property. It’s the responsibility of the buyer by law to assign who will pay at close. Generally, parties agree to a 50/50 split of the transfer taxes.
Title Transfer
Yes, you will need Title Insurance but consider checking Title commitment. This ensures transfer of title occurs as part of overall transaction and any changes or termination of the contract are within sufficient time to adjust or terminate the rest of the transaction.
Specify an escrow agent
Just like any traditional real estate transaction, both parties will need to agree on an escrow agent to hold funds. It’s best to find a third party with no interest in the transaction. The escrow agent can either keep separate accounts for the different purchases (one for real estate, one for intellectual property, etc.) or different escrow agents can be employed for the different components of the transaction.
This is just the tip of the iceberg when it comes to real estate property in M&A transactions, which is why it’s extremely important to have an experienced real estate attorney review any land sale agreement before signing it, especially in the context of an M&A transaction.
Related: How to Pick the Right Deal Structure and Purchase Agreement Terms for M&A
The experienced attorneys at Hackstaff, Snow, Atkinson & Griess can help you fully understand the terms of M&A land sale agreements and ensure that your interests are protected. Contact us today to learn more.
