Contract Drafting
2011-03-08
University of Houston Law Center
Spring 2011
D. C. Toedt III
Guest speaker
Louis E. Silver
Schlanger, Silver,
Barg & Paine, LLP
Objective of this class session
High-level overview of typical transaction
 Survey of documents to be drafted
 Selected legal- and business points
 NOT:

students to do real-estate deals “solo”
 Provide contract forms
 Equip
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 “influencers”
The obvious ones: Seller, Buyer
 Other important players:

 Lender(s)
 Anchor
tenant(s)
 Other tenants
 Local 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

– how delivered?
 Consideration - ditto
 Escrow
 Signatures

Closing instruction letter –
brings everything together
Some key agreement components
1.
2.
3.
4.
Timeline
Covenants and/or closing conditions
Reps & warranties
Disclosure schedule – exceptions to R&W
 Nomenclature:
“Schedule 4.7(a)”
Some key agreement components

Exhibit forms
deed – Tex. Prop. Code
 Promissory note?
 Deed of trust?
 Estoppel certificate (signed by tenant)?
 Attornment / subordination / nondisturbance
agreement (between lender & tenant)?
 Bring-down certificate?
 Warranty
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
covenants
 Bring money / bring deed

Seller’s reps and warranties correct
(materiality qualifier?)
title, etc. – due diligence
 “Bring-down” certificate?
 Good

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 leases
 New lease
 New title encumbrance

Indemnities
 Environmental
 Others?
– how far back does it go?
Covenants
Maintain insurance coverage
 Risk of loss

 Seller
maintains risk of loss till the closing
 What 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?
 Add’l info: Texas Dept. of Insurance page

Survey of the property
5Ws – who, when, why, where, what
 Whom to hire?
 Lender desires
 Issues to review include:

 Flood
plain
 Soil studies
 Platting
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 provisions
 Co-tenancy issues
 Termination rights
Drafting issues: Leases

Rep & warranties
 No
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
fact sheets – useful
summaries
 EPA



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?
Last question
(With apologies to Wait Wait Don’t Tell Me)