Coronavirus and Considerations for Real Estate Transactions: PURCHASES & SALESMarch 19, 2020
In the case of an existing real estate purchase and sale agreement, seller and purchaser each should review the terms of the agreement, particularly with respect to the following questions:
- Have any of the seller’s representations and warranties been breached as a result of market disruptions and does the agreement provide for a change in circumstances?
- Do the challenges caused by the pandemic affect the seller’s ability to comply with the agreement’s covenants?
- Are there any closing conditions that cannot be satisfied due to the disruptions?
- Are there any impediments to closing?
For an operating property in particular, the potential disruptions caused with respect to leases and building operations should lead the parties to consider the following:
- Analyze the seller’s representations and warranties as well as what allowances the agreement makes for changes in circumstances and material adverse effects with respect to the seller’s representations and warranties.
- Evaluate any covenants in the agreement and continued compliance with such covenants. The seller typically covenants to handle tenancies and operate the property in a certain manner during the period between execution of the agreement and closing.
- Check the closing conditions in the agreement to assess whether any such conditions are now more difficult to satisfy because of the market disruptions resulting from the pandemic.
- Review the closing mechanics and any “time of the essence” provision with respect to the closing.
In light of the pandemic, the parties need to work through the logistics of closing. While escrow closings and technology can help ensure a smooth closing, parties should be proactive in terms of planning given the rapidly changing environment.
To accommodate serious, but temporary and systematic, business interruptions, sellers and purchasers will need to review their agreements and the particular circumstance each party faces. Herrick is actively monitoring the situation and accumulating a broad range of market intelligence from our discussions. We are here to help sellers and purchasers develop creative solutions to address the most complex problems presented to us.
© 2020 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.