Commercial Real Estate Sellers: Hire Your Own Attorney!

Does a seller of commercial real estate really need an attorney?  I get asked this question often, and the resounding answer is "yes!"

Often, sellers of commercial real estate assume they can rely on the buyer's attorney or broker to represent their interests. However, it is imperative for sellers to procure their own attorney, partly due to the complex nature of such transactions. If a seller engages an attorney early in the process, the attorney can help the seller to both avoid liability from unexpected issues and protect the seller's benefits from the sale.

Listing the Property

Many sellers will list their property with a real estate broker.  The broker will provide the seller with a Listing Agreement, often based on a form that favors the broker's interests.

Sellers, even those who hire an attorney for closing, often neglect to engage legal counsel during the listing stage. This oversight can harm sellers because, despite Listing Agreements appearing standardized, brokers are willing to negotiate terms.

For example, a form Listing Agreement provided by a broker may state that the broker's commission is earned when the seller accepts an unconditional offer from a buyer, which does not require the transaction to close for the commission to become due.  In such a case, the seller may wish to negotiate so that any commission is only earned and due when, and if, a closing occurs, and the seller receives the money from the sale.

Purchase and Sale Agreement

The buyer will typically present a Purchase and Sale Agreement to the seller.  This, in many cases, is a "standard form" that has been jointly approved by the North Carolina Association of Realtors and the North Carolina Bar Association. 

If the buyer uses one of these forms, the buyer's broker will often assist the buyer in completing the blanks and presenting the offer.  Alternatively, a buyer may have an attorney prepare a custom Purchase and Sale Agreement. In either event, a seller will benefit from hiring an attorney to review the Purchase and Sale Agreement prior to signing it in order to limit the seller's risk. 

In North Carolina, the seller's attorney, in contrast to the seller's real estate broker, can prepare custom language changing the terms and conditions of an offered Purchase and Sale Agreement.  For example, a seller may want to limit the representations and warranties the Purchase and Sale Agreement requires the seller to give to the buyer and the remedies available to the buyer in the event of a seller default.  In addition, the terms of the Purchase and Sale Agreement dictate what the seller must deliver to the buyer, including the type of deed the seller must present at closing.  Some deeds contain broad title warranty language exposing the seller to liability for title issues for years even if the title problem occurred long before the seller even owned the property, the seller didn't cause the title issue, or didn't know about it.  However, other forms of deeds contain limited warranties or no warranties at all.  Limiting warranties can be especially important in situations where the seller has limited knowledge about the title, such as with inherited property or property on which a full title search was not completed previously.  An attorney representing a seller can negotiate the form of the deed for the conveyance.

The Purchase and Sale Agreement also contains a description of the property to be transferred, but sometimes the description is one the buyer has cobbled together, which may not be the true description of the property for sale.  The seller needs to ensure that the seller is obligated to only convey title to property the seller, in fact, owns.  Also, few properties are without any title problems (called "exceptions") at all, and the Purchase and Sale Agreement should include title warranty exceptions that the parties can agree on at the time of contracting.  An attorney can work through these issues with the seller during the negotiation of the Purchase and Sale Agreement to ensure that the seller does not contract to convey more than the seller owns.

Closing

At Closing, a seller must deliver certain documents, including a deed, to the buyer or the buyer's attorney.  It is not atypical for a buyer's attorney to prepare the seller's closing documents as an accommodation in order to get the transaction closed as quickly as possible.  However, sellers should understand that a buyer's attorney will be acting in the buyer's best interests, not the seller's best interests.

For example, although Purchase and Sale Agreements often state the matters that should be exceptions to the title warranties in the deed, many times a buyer's attorney will use a form deed that may include broader warranty language.  In addition, title insurance companies require affidavits from sellers associated with title insurance coverage.  Sometimes the affidavits provided by a buyer's title insurance company include broader language than necessary, potentially opening up sellers to greater post-closing liability. Sellers should not execute any sworn statement, such as an affidavit, that has not been approved by an attorney acting in the seller's best interest because that attorney can ensure that the correct form is used and that the form contains only accurate facts.  Without legal representation, sellers risk certifying to, and assuming liability for, incorrect statements.

Commercial real estate sellers, just like buyers, should engage their own attorney early in the process to ensure their best interests are protected throughout an entire real estate transaction. Contact Ward and Smith's Real Estate attorneys today to secure sound guidance and support throughout the selling or buying process.  

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This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

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