If you are working with a client preparing to sell a multi-family building, familiarizing yourself with the legal documents typically required for the transaction can put you at great advantage. And having these documents ready, or being ready to produce them in an expedient and orderly fashion when requested, will go a long way towards a smoother sell.
Here are four of the most common and basic of those documents:
– 1.) Leases
The buyer will want to see copies of all leases affecting the property. Watch for these all-too-common seller errors:
(a) Not having complete copies. Assume that all pages are important. Missing pages mean liability concerns to a potential buyer.
(b) Not having signed copies. Without seeing a signed copy of a lease, a buyer has to assume it doesn’t exist, potentially making the lease unenforceable against the tenant, or significantly increasing the cost to make it enforceable.
(c) Assuming that an expired lease does not need to be produced. If a tenant signed a lease which has since expired, yet continues to live in the property on a month-to-month basis, the expired written lease still has legal significance and should be tendered to the buyer.
(d) Sending extension documents only. If a lease has been renewed through the use of renewal or extension amendments, be sure to provide the original lease, plus all the extension agreements thereafter. Without the original lease, the buyer will have a more difficult road to enforcing all of the terms of the lease.
– 2.) Rent Rolls
A rent roll lists all current tenants in the property, as well as certain essential information regarding each apartment. At its most basic, a rent roll will show the amount of rent being charged and when the current lease term expires for each apartment. A more complete and thorough rent roll will include the following information for every apartment:
(a) The full names of all tenants and/or authorized occupants;
(b) Contact information for the tenants (phone and/or email);
(c) The monthly rent;
(d) The amount of security deposit held;
(e) The term of the current lease, including month-to-month, if applicable;
(f) Whether the tenant is current or delinquent, and if delinquent, by how much; and
(g) The seller’s signature, with a statement certifying that the information provided is accurate as of the date of the rent roll.
– 3.) Service Contracts
Sellers often forget that there may be service agreements tied to their building that will have to transfer to the new owner after the sale. These could include contracts such as maintenance, snow plowing, landscaping, elevator maintenance, management, security, scavenger and many other services. Failure to disclose any of these contracts to a buyer could not only jeopardize the sale, but could also cause the seller to be sued by the buyer after the deal has closed.
Advise your sellers to carefully review the operations of the building, and ensure they prepare copies of all service contracts affecting the property. It is most important to disclose those contracts which cannot be cancelled prior to the closing, as those will have to be assumed by the buyer. Having all this information ready and available makes a good impression and helps support the value the seller is seeking to collect.
– 4.) Estoppel Letters
Experienced or well-represented buyers will require a seller to provide estoppel letters from the tenants at closing. An estoppel letter is a statement that the tenant signs, confirming various important items to the buyer. The extent and sophistication of an estoppel letter may vary widely, but typically, they will include the following basic representations:
(a) In the event of a written lease, that an accurate copy of the lease accompanies the estoppel letter;
(b) That the tenant is not aware of any defaults on the part of the landlord;
(c) That the tenant does not have any rights that are not shown in the lease;
(d) That the lease is still in full force and effect; and
(e) Confirmation of the monthly rent, the security deposit (if any) and the lease term.
Buyers always appreciate sellers who come to the table with their records in order. It’s a good indication that the property has been well-managed, will make for a promising acquisition, and, in the end, an easier sale.
As well, sellers appreciate an Agent who offers the kind of information and resources that can guide them through the intricacies of the process.
With more than 25 years of experience representing multi-family property sellers, the Team at Erwin Law is here to help you and your client successfully prepare and close your next sale. Call us at 773-525-0153, or email us at: [email protected]