Commercial Offer Building Blocks

Versatile WB-15 is the customization foundation


 Deb Conrad  |    August 08, 2013
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Commercial transactions involve a wide variety of real estate used for retail, office, industrial, manufacturing, recreational and mixed uses. These transactions run the gamut from the sale of a small retail shop to the purchase of a gas station to the acquisition of a major shopping center or manufacturing facility in an industrial park. It is impossible to include in preprinted forms all of the provisions that might be desirable in all of these different deals. Accordingly, the WB-15 Commercial Offer to Purchase by necessity provides a basic framework. Transaction-specific provisions are added in the contingencies and the Additional Provisions section or addenda to custom-build the specific contract.

Commercial contingencies

Commercial practitioners can use tools such as the Proposed Use Contingencies, the Document Review Contingency and the Environmental Evaluation Contingency in drafting an offer that gathers the information the buyer needs to evaluate and complete the transaction. 

Proposed Use Contingencies (WB-15 Lines 116-139)

Each Proposed Use sub-contingency is based upon the buyer obtaining the documentation, permit, assurances, etc. that the buyer needs to proceed with the buyer’s proposed use or development plans. The seller’s main role is to cooperate with the buyer as needed. If the buyer discovers that a planned use or improvement is not legal or will involve significant delays or higher costs, the buyer can give notice to end the contract, by documenting the disconnect between the buyer’s proposed use and the results of the sub-contingency.

Easements and Restrictions (Lines 123-126): The buyer purchasing a manufacturing facility in an industrial park can take advantage of the Easements and Restrictions sub-contingency to obtain and evaluate applicable easements, reciprocal easement agreements, or covenants and restrictions because significant restrictions may be in place in office or industrial parks with shared facilities. This buyer also should be alert to provisions that permit future changes such as relocation of access roads or developer rights to grant additional easements on common areas.

Approvals (Lines 127-132): If the buyer is purchasing a retail shop intended for a liquor store, the buyer may want to use this sub-contingency to make the offer contingent on receiving a liquor license or at least confirming that the requisite licenses would not be precluded by local quotas or restrictions. The buyer could also take advantage of this sub-contingency if the facility being purchased will be used for a dry cleaning, lawn care or pest control business to ensure that the requisite permits and licenses relative to chemical storage and application are attainable.

Access to Property (Lines 133-134): The access sub-contingency provides the buyer with the chance to ensure that the property has adequate access from public streets. Commercial property buyers may need to confirm legal access for the sake of their customers and clients, suppliers, delivery vehicles and emergency vehicles, particularly if the property is in a remote area. Related items that may be addressed in other contingencies or Additional Provisions include whether the property has sufficient parking, truck loading facilities or railroad access, for the proposed use. 

Land Use Approval (Lines 135-139): This sub-contingency gives the buyer the opportunity to secure any rezoning, conditional use permits, licenses and variances, as well as building and occupancy permits needed for the buyer’s proposed use. Note that it may not always be possible for a buyer to actually secure the needed permit or action prior to closing, while in other circumstances it may be possible to obtain desired assurances if the buyer and seller work together. 

Document Review Contingency (Lines 157-177)

The Document Review Contingency gives the commercial purchaser the opportunity to request a wide range of paperwork, including documents confirming the sale has been authorized, an inventory, a UCC lien search and rent rolls. There are also blank lines where other items may be written in and a confidentiality provision that requires the return of all originals and reproductions should the deal not close.

Entity Authorization:¬†When dealing with a company or business entity, a decision to sell an asset such as a commercial building requires specific authorization. Although REALTORS¬ģ should be familiar with the types of documentation that may be provided by a corporation or limited liability company (LLC), the title company or an attorney decides what documentation is or is not legally acceptable.¬†

Inventory: An inventory provided here may be the preliminary snapshot of the attachment used for a bill of sale transferring any personal property included in the sale. The WB-25 Bill of Sale does not provide warranties regarding the condition of the personal property, so if such warranties are desired, the parties must provide for them in Additional Provisions or in an addendum. Other title documents may be needed, for example, a Department of Transportation title transfer, if the florist delivery truck is included with the sale of a flower shop.

Other ‚ÄĒ Leases and Contracts:¬†In the Other lines, a buyer might require the seller to provide copies of all service contracts on the property ‚ÄĒ such as HVAC maintenance, snow removal or landscaping ‚ÄĒ so the buyer can determine whether they may wish to have them assigned to the buyer. Contracts for elevator service and HVAC service may be retained because of the nature of these trades and the warranties that may come with the contracts.

Environmental Evaluation Contingency (Lines 379-395)

The Environmental Evaluation Contingency provides the framework and standards for a Phase I Environmental Site Assessment. A Phase I assessment identifies all potential or known areas of environmental contamination via a walk-through inspection of the property; review of the ownership and use history; review of aerial photographs; review of environmental licenses, permits or orders issued for the property; evaluation of any prior environmental sampling and analysis; and a determination of whether the property is listed on governmental agency databases as a site or facility posing possible health or environmental risks. The assessment is conducted by the independent environmental consultant of the buyer’s choice and does not include subsurface testing of the soil or groundwater or other testing. It is important to start the Phase I assessment early on so if problems are disclosed there is time to follow up with tests and possible remediation. 

If, for example, the Phase I assessment discloses any prior use for a gas station, a machine shop or a dry cleaner ‚ÄĒ then the parties will typically engage a contractor for a Phase II Site Assessment. The Phase II assessment typically includes sampling and laboratory testing of soils, groundwater and other elements.

Additional provisions and addenda

While there is no end to the additional provisions which might be useful in a commercial transaction, the following examples provide a taste of the concerns that might face the buyer and inspire inspection or testing contingencies in the commercial offer.

Accessibility: It is important to determine whether existing improvements on the property comply with applicable accessibility requirements. The Americans with Disabilities Act (ADA) ensures that businesses that provide goods and services to the public are accessible to people with disabilities. A change in use or construction of additional improvements may trigger additional accessibility compliance requirements. See Legal Update 01.10, ‚ÄúAccessible Offices and Homes: A Guide to the ADA and Visitability,‚ÄĚ online at www.wra.org/LU0110.

Lead Paint Testing: Lead paint is most problematic in residential settings, such as multifamily housing, where child safety is a concern and where federal law requires disclosure to tenants and buyers in residences built prior to 1978. See the May 2010 Legal Update, ‚ÄúLead-Based Paint in Target Housing‚ÄĚ at www.wra.org/LU1005. Lead paint can also be problematic in industrial settings, since it can significantly affect how repainting and refurbishing activities are conducted. For example, sandblasting and removal of old lead paint often will require significant precautions in order to avoid lead contamination problems.

Floodplains: Floodplain or Special Flood Hazard Area designation can adversely affect the development potential, applicable building standards and the availability of financing, as well as flood insurance requirements and costs. The buyer may want a provision confirming whether the property is within the floodplain or that the cost of flood insurance will not exceed a specified amount. See the latest comprehensive information from NAR at www.realtor.org/topics/national-flood-insurance-program-nfip and ‚ÄúFlood Insurance Rate Adjustments: Helping property owners keep premiums in check‚ÄĚ in the July 2013 Wisconsin Real Estate Magazine at www.wra.org/WREM/July13/FloodInsurance.

Wetlands: The presence of wetland conditions can have a significant effect on the operation and development potential of a property. As a result, it is important to check with the applicable municipality to determine whether any portion of the property is considered wetlands or shoreline. Wetlands and certain uplands located near navigable waters may be subject to significant use and development restrictions. If the property has or may contain wetlands, it may be helpful to include the WRA Addendum W (see dnr.wi.gov/topic/wetlands/documents/addendumw_2008final.pdf) in the offer.

Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.

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