What Is Clear Title? How Could It Affect My Commercial Real Estate Transaction?

On the seller’s side, clear title allows you to convey title to the property, which is in the form of a deed that does not have any liens or encumbrances; Such liens are a monetary lien or a financial lien created by a mortgage. Those must be cleared up, and conversely, for a purchaser, clear title is what they would be getting if they don’t take it subject to liens unless it’s been negotiated that they take it subject to any liens. Often, in commercial real estate transactions, there tend to larger parcels of land that might have been aggregated over time with various uses that could be filings against the property that need to be cleared by a seller. That is part of what the seller’s attorney would examine once the client shares the status of the property. Viewing the title report is a critical part of the process, as well as getting an idea of what the situation is at that moment in time to get out in front of the issues. 

Does It Matter How I Take Ownership Of Commercial Property?

Yes. It is a collaboration on a commercial transaction between the attorney, the client, and usually their tax advisor and accountant, which decided which structure is best inside their business structure, and how it will be used. Generally, if a company wants to acquire a site to start operations, you never take it into the operating entity’s name. Instead, you take it where you form a separate corporate or limited liability company better known as an LLC to take the title so you could insulate the property. 

What Is A 1031 Exchange?

A 1031 exchange is not tax avoidance, but it’s tax deferral, so there are very bright line-specific rules in a 1031 transfer that must be adhered to, or the whole transaction fails. It must be scrutinized between the clients and their tax advisors to decide if it makes sense because sometimes the costs to acquire the replacement property. The financial gain from property A, you want to use to acquire property B. Still, by acquiring property B, the cost may far exceeds whatever the tax liability would have been on either a long or short-term capital gain on the sale of property A, and that’s why there is a careful collaboration between the seller’s attorney, the client, and their tax advisor to evaluate the situation. 

What Generally Happens After The Offer Is Accepted And A Contract Is Signed?

In the purchase process, financing involves working with the lender, getting the financing set up, and collaborating to meet everyone’s best interest. The attorney for the purchaser would review the loan document that you would generally have in a regular residential purchase deal, and you can negotiate some of the terms in those documents. The stack always seems to be getting higher for most lenders these days with commercial lending.

From the purchaser’s side, they would get the title search and report done and deal with anything that comes up that can affect clear title, certificate of occupancy as issued for the property, violations, judgments, liens, or anything else of consequence. The purchaser’s attorney is making sure that the seller’s attorney does whatever is required so when the transaction starts to move towards the closing date, issues have been dealt with, and we can look forward to a smooth closing. 

Should A Seller Take The Property Off The Market Once An Offer Has Been Made?

Absolutely not until a firm contract of sale has been signed and the seller’s attorney has received a contract deposit. For example, I just had a client who did some due diligence, signed the contract, was ready to write the check for the contract deposit, and something came up in due diligence and put the brakes on the deal. Now, if you are on the seller’s side of that and if you took it off the market, you might have been losing opportunities. So, I never advise from the seller’s standpoint not to stop marketing that property until there is a signed contract. Even after a signed contract, in New York, they are allowed to continue marketing as long as it is under full disclosure that they are soliciting backup offers if the property doesn’t pass due diligence. But generally, you don’t take that property off the market until a contract is signed and the contract deposit has been tendered. 

For more information on Clear Title In A Commercial Real Estate Transaction, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (212) 847-4948 today.