Contract Drafting2010-03-03

University of Houston Law CenterSpring 2010D. C. Toedt III

Panelists from Schlanger Silver and Thompson Knight

Louis Silver

Alfred Meyerson

Roshni Patel

Thad Armstrong

Objective of this class session

High-level overview of typical transaction Survey of documents to be drafted Selected legal- and business points NOT:

Equip students to do real-estate deals “solo”Provide contract forms (but see samples at

http://www.OnTechnologyContracts.com/uhspring2010/ from SEC’s EDGAR database)

Review: Signatures

NORTH BY EAST ENTERTAINMENT, LTD., by Northeast Platinum, LLC, its general partner, by: /s/ John Auletta John Auletta, sole member of Northeast Platinum, LLC

Hypothetical transaction: sell a shopping center

The “players”

The obvious ones: Seller, Buyer Other important players:

Lender(s)Anchor tenant(s)Other tenantsLocal government(s)Quasi-governmental entities

Letters of intent

Letters of intent Potentially dangerous Stmt. of present intention on basic points

Price; timeline; earnest money; brokers; etc.Conditions precedent – due diligence, etc.Lock-up?Expenses of negotiation

Expressly ID binding vs. non-binding terms Confidentiality? Press release? One for each phase of deal?

Agreement of Purchase and Sale

The goal: Closing

Swap deed for $, prom. note, etc. Old-style closings vs. modern logistics

Signatures – how delivered?Consideration - dittoEscrow

Closing instruction letter – brings everything together

Some key agreement components1. Timeline2. Covenants and/or closing conditions

Review: Damages and/or walk-away right

3. Reps & warrantiesReview: Distinction between the twoAnything not apparent from due diligence = rep

4. Disclosure schedule – exceptions to R&WNomenclature: “Schedule 4.7(a)”

Exhibit formsWarranty deed – Tex. Prop. CodePromissory note?Deed of trust?Estoppel certificate (signed by tenant)?Attornment / subordination / nondisturbance

agreement (between lender & tenant)?Bring-down certificate?

Some key agreement components

Timeline: Critical dates in agreement Closing date

Might be tied to conditions being fulfilled, e.g., receipt of govt. licenses / approvals

Drop-dead date Title & survey review period – how long? Inspection period – how long? When does earnest money become ‘at risk’?

Conditions to obligation-to-close Pre-closing & closing covenants satisfied

Operational covenantsBring money / bring deed

Seller’s reps and warranties correct (materiality qualifier?)Good title, etc. – due diligence“Bring-down” certificate?

Estoppel certificates, etc., from current tenants

Money transfer: Mechanics

Wire transfer? Promissory note?

Covenants

Deliver deed, money, etc. Buyer consent required for pre-closing:

Amend. or modif. of existing leasesNew leaseNew title encumbrance

Indemnities Environmental – how far back does it go?Others?

Covenants

Maintain insurance coverage Risk of loss

Seller maintains risk of loss till the closingWhat happens if the place burns down before

closing?

Due diligence

Title search/policy & related D/D

Purpose – why? Searcher – who? Timing – when? Admin. mechanics – how, who pays? Issues to look for – what?

Drafting issues: Title

Rep & warrantiesSeller has good title

Closing conditionsNo problems with title search

CovenantsDeliver signed gen. warr. deed at closing Indemnities?

Survey of the property

5Ws – who, when, why, where, what Whom to hire? Lender desires Issues to review include:

Flood plainSoil studiesPlatting

Drafting issues: Survey

Rep & warranties Closing conditions

No (unscheduled) encroachments Covenants

Indemnities?

Existing leases Rent roll Anchor tenant, smaller tenants Lease agreements

Conflicting use- and exclusivity provisionsCo-tenancy issuesTermination rights

Drafting issues: Leases

Rep & warrantiesNo tenants in default (except as scheduled)No disputes, pending terminations, etc.

Estoppel certificates Covenants Closing conditions

Commercial Leases: Top 10 Things 10: Permitted, prohibited uses 9: Notice and opportunity to cure 8: Consents and approvals not to be

unreasonably withheld, conditioned or delayed.

7: Beware of relocation rights 6: Obligations should be conditions and

covenants

Commercial Leases: Top 10 Things 5: Remedies – exclusive? Cumulative?

Self-help? 4: Future needs 3: Options! (Renewal, expansion, termin.) 2: Beginning, end of obligations 1: Consistency!

Environmental due-diligence CERCLA, amended by

Brownfields Law EPA fact sheets – useful

summaries Current owner or

operator liability for clean-up costs

Exposure potential for lenders

Strict liability, but … Gowanus Canal, Brooklyn

“All appropriate inquiries” due-diligence defense EPA fact sheet Hire an ‘environmental professional’

Licensed, experienced ASTM standards (American Society for

Testing Materials) Shelf life for investigations

Drafting issues: Environmental

Rep & warranties Closing conditions Contingency plans

Indemnities

Other questions?

Homework

See the Web site (www.OnTechnologyContracts.com/UHSpring2010)

Last question for panelists

(With apologies to Wait Wait Don’t Tell Me)