A Right of First Refusal in Conjunction with a Simultaneous Closing

Last Updated on Thursday, 14 July 2011 04:03 Written by Chris Griswold Thursday, 1 July 2010 09:24

The weather has been crazy with record snows and ice, record hails and record floods.  Locusts could be next….  More importantly, I hope everyone’s 4^th of July was well spent.  Regardless of your political preferences/affiliations (and even with the current economy which appears to be improving), we’re all lucky to be alive and live in a country where property can be privately owned, where there are no debtors’ prisons and where everyone has a voice.  Surely, the most challenged among us is more fortunate and privileged than most of those who live outside our borders….   God Bless America.  Today, we’ll briefly cover the value of using a right of first refusal clause in a simultaneous closing situation.  Read more below.

A Right of First Refusal in Conjunction with a Simultaneous Closing

If you’ve never been party to a closing whereby the seller simultaneously takes title to a piece of property just to immediately convey it away, then it’s only a matter of time.  While these types of transactions are fairly common, they’re not always simple.  Why? Well, sometimes sellers have difficulties acquiring title to the property they’re attempting to sell which, depending on the factors involved and the price tags at stake, can put the buyer in the hurt locker.  How so?

Scenario: Imagine you’re the buyer in a transaction where you’re attempting to acquire title to 3 different parcels of property from 3 different sellers for the purpose of creating 1 large, retail development.  To boot, one of the sellers doesn’t currently hold title to their parcel – we’ll call him “Joe.”  Joe’s parcel is the most important piece of the development puzzle.  Without Joe’s parcel, things won’t work and, furthermore, the commitments you’ve received from retailers on the other 2 parcels depend, and strictly condition their commitments, upon the inclusion of Joe’s parcel.  So, basically, you’re up a creek (and in trouble with everyone) if Joe can’t acquire and convey good title.  You get the picture.

That’s when a right of first refusal comes in handy.  Without incurring a lot of excessive legal fees, you (as buyer) can get a right of first refusal to purchase “Joe’s” parcel directly from the entity otherwise selling to Joe.  Among other safeguards, this particular clause should be written directly into the contract Joe has with this selling entity.  You’re sure to get push-back from Joe on this (since Joe doesn’t want you cutting him out of the picture) but, at the end of the day, the documentation can be written up to protect both you and Joe.

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“Chris Griswold has always been proactive and professional.  He takes the time to work with us and tailors his approach to our situational needs.  My favorite thing about Chris is that he will let me know if there is an easier, less-expensive approach.  We look forward to working with him well into the future.”

Carl S. Milam / President / Western Concepts Restaurant Group / Oklahoma City, Oklahoma

Using PUDs (Planned Unit Developments)

Last Updated on Thursday, 14 July 2011 04:03 Written by Chris Griswold Tuesday, 1 June 2010 09:23

Planned Unit Developments (“PUD’s”).  If you’ve ever wanted to buy a piece of property (or use property you already own) for the purpose of conducting certain, specific uses upon that property which are not permitted under the existing zoning base district, you need to know about PUD’s.  Why? As time progresses, it will be more and more difficult to have a piece of property conventionally re-zoned (i.e., changed as to zoning base district).  Instead, city officials will be much more amenable to having the property specially re-zoned to a PUD which has certain, specific uses “rolled into” the PUD.  However, there are a few, basic things you should know about PUD’s before using them.  Read more below.

Using PUD’s

PUD’s v. Conventional Re-Zoning. It’s important to note that getting a PUD approved (and having those certain, specific uses rolled into it) is, in fact, a “re-zoning” in every sense of the word – just like a conventional re-zoning of the zoning base district of the property.  In fact, once approved, the PUD will be its very own, permanent, ordinance-based, special zoning district.  So, don’t mistakenly believe that by doing a PUD you are doing something less (and easier) than “re-zoning” your property.  When your PUD is finally approved, what you’ll have is a piece of property which has those specific, desired and unique land uses rolled into it.  However, as with all good things in life, there are potential pitfalls.  So, before you go putt-putting along getting your PUD, be sure to at least consider the following….

Potential Pitfalls of Using PUD’s. Under certain circumstances, getting a PUD might actually limit your land use and negatively affect other things.  Example:  You own property which is zoned both I-2 and I-3 (the majority being I-2).  Your desired, specific use of the property is permitted under the I-3 but not the I-2.  The only way to utilize the I-2 portion with this use (remember, the majority is I-2), is to get a PUD.  When you get the PUD, the I-2/I-3 distinction will go away and the whole property will be restricted to the specifically enumerated uses of the PUD.  In other words, the previously permitted uses allowed under I-3 (which are undoubtedly much higher and broader than those specifically enumerated under the PUD) will be lost.  This may: i) negatively affect future marketability and overall fair market value of the land, ii) limit/restrict what you can do with and upon your property in the future (should your needs change), and iii) if you’re not careful when applying for the PUD, actually prevent you from doing what you currently need to do upon the land if you failed to include all of your desired uses into the PUD (thus requiring you to immediately revise the PUD).  Crazy, huh?

“Starting my own business presented many obstacles and uncertainties.  I was fortunate and blessed to have my real estate broker recommend Chris Griswold as a resource for my lease reviews and negotiations.  Chris addressed all my questions and concerns with unyielding patience and guidance and helped me secure a strong and favorable lease.  Chris you are an exceptional resource and even better friend….  Thanks for all your help with this first location.  I look forward to working with you on the next one.”

Chris Lucas / Owner / KoKo Fitclub / Edmond, Oklahoma

Using Contract for Deeds (CFD)

Last Updated on Thursday, 14 July 2011 04:03 Written by Chris Griswold Saturday, 1 May 2010 09:22

“40 Acres, No Mule.”  I’m sure you can relate given that deals are hard to finance lately.  As a result, more than a few people have asked for assistance in helping them owner-carry (or buy some owner-carried) real estate.  During the conversation, people usually mention the “contract for deed” arrangement.  While still a legal way to convey property, it’s honestly not the most desirable way.  However, if you should find yourself in a situation where the other party insists on using it, read below to find out how to more effectively use the contract for deed (“CFD”).

Using CFD’s

Actual Conveyance. As a seller, you must realize that in signing the CFD, you have actually executed a legal conveyance to the buyer.  What does this mean?  It means you have sold it with just as much force and validity as if you had received the entire proceeds from the buyer’s lender at a conventional closing.  It also means that if the buyer defaults in their payments under the CFD, you’ll have to actually foreclose on the mortgage you hold (as opposed to simply terminating the CFD and demanding possession back like you’d do with a normal land installment contract).  This is, in part, why people have really gotten away from using CFD’s and instead started using conventional “mortgage, note and deed” vehicles.

Recording CFD’s; Escrowing Deed. As a buyer, you need to understand that, once signed, a CFD needs to be recorded with the relevant county clerk.  If the seller balks at recording, you need to walk away because that’s the only evidence which proves you own the subject property.  Also, as a buyer, you should require that the deed (which conveys title to you) be escrowed with a reliable person or entity such as an accountant, attorney or bank for future recording (which usually shouldn’t occur later than 10 years after signing the CFD).  Otherwise, the seller could die, change jobs, skip town or just move away and you’d be short a deed….

Due On Sale Clauses. Whether you’re a buyer or seller, you need to understand that the seller’s existing mortgage (if there is one) on the subject property will undoubtedly contain a “due on sale clause.”  This clause will require the immediate and full payment of seller’s existing mortgage if seller attempts to sell (or even long-term lease) the property (i.e., enter into a CFD).  This clause can cause countless problems with title insurance and property casualty/general liability insurance coverages.  Among them, who gets the proceeds upon a property casualty?  Who has an insurable interest?  If coverages are purchased by buyer, what will prevent the due on sale clause from triggering and, if so, who/what protects the buyer?

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“WhichWich? is experiencing tremendous growth and we feel fortunate to have Chris Griswold, P.C. as our lead Real Estate Attorney during this time of expansion.  His knowledge, professionalism, tenacity, integrity and drive have given our brand an edge over our competition when securing premier locations throughout the country.  He continues to make our needs a priority and we look forward to working with him for many years to come.”

Jeff Vickers / Director of Development / Which?Which / Dallas, Texas