What is the usual process for transfer of commercial real estate?

Real Estate

Germany Small Flag Germany

Transaction Steps

Seller

Buyer

Comments

Heads of terms ("HoT")

·  Prepare and negotiate HoT

·  Produce sales pack comprising title documents and property information (e.g. if property let, leases, tenant arrears and service charge details)

 

·    Negotiate HoT

·    For leasehold property where landlord's consent required, collate relevant information about buyer and any guarantor, such as accounts and references  and provide to seller

·   HoT not binding save for agreed exclusivity and confidentiality provisions

·   Most sale packs are hosted on virtual data sites

 

Preparation of sale agreement

·  Prepare draft property purchase agreement

·  Prepare any ancillary documents (e.g. standard annexes, transfer and assignment of leases and rent deposits and, if property new building, assignment of construction documentation)

·  Negotiate agreement

·  Prepare release mechanism with financing banks

·    Carry out legal due diligence (see Q7)

·    Buyer will arrange a valuation and structural survey

·    Negotiate agreement and ancillary documents

·         Prepare new financing

·   No prescribed form of agreement but industry standard terms depending on market and formally described form 

·   Land purchase agreement requires notarisation in front of a German notary

·   Under certain circumstances cartel clearance is required to effect the sale (depending on income from the property and revenues of the buyer)

Signing to closing

·  Satisfy any seller's conditions to closing

·  Agree redemption statement and arrangements with current lender for discharge of mortgage on closing including execution of Land Registry discharge form

·  Receive any public law approvals (such as statutory pre-emption right which applies for most real estate transactions)

 

·         Payment of a deposit if agreed at or shortly following signing

·         Arrange funding including third-party debt and agree on a land charge on the property to secure such financing

·         Pay land transfer tax incurred by purchase (percentage related to purchase price, depending on German state where property is situated)

·   A deposit may be required on signing, which will be forfeited if the buyer fails to complete sale (unless failure was due to the seller)

·   Deposit will typically be paid to notary's trust account

 

Closing

·  Use price to pay off existing debt

·  Automatic closing

 

·    Pay balance of price (e.g. minus any deposit)

·    Satisfy buyer's lender's loan conditions precedent

·    Automatic closing is typically  provided in the purchase agreement, e.g. upon payment of the purchase price beneficial title will pass automatically with legal title to be registered thereafter, which might take up to some months. In the interim the purchase is secured via a priority notice, which is registered in the land register in favour of the buyer, such registration being a condition to completion.

·         Notary will handle the process to registration of legal ownership which will be set forth as a standard in the purchase agreement.

·   Loan condition precedents will also require a Land Registry priority search with at least 20 working days priority from closing

 

Post-closing

·  True up property charges and service charges

·  Send rent authority letter to tenants with new payment instructions

·  Transfer tenants' rent deposits to buyer

·         Hand over other relevant documents.

 

·         Have new insurance in place

·         True up for property and service charges

 

 

Ireland Small Flag Ireland

Heads of Terms are agreed between buyer and seller, usually represented by property agents. These are non-binding.

There is a standard form Contract for Sale for use in property transactions in Ireland containing market standard terms and conditions. It is designed to give a fair balance of rights between the parties. The conditions make a number of assumptions about the property and place certain disclosure obligations on a seller. The conditions include matters as to title, registration, identity, rights and liabilities, enquiries, searches, planning, deposit etc. However, it is common for many of these terms and conditions to be dis-applied or varied to suit particular circumstances.

Normally, there is a four week period between exchange of contracts and completion of the sale but these can happen simultaneously or in whatever time period the parties agree. There is no universal prescribed form of transfer document. However, there are a number of prescribed forms for use in transfers of property in the Land Registry.

Unless required as part of the execution requirements of a foreign entity under its own laws, it is not necessary for a notary or other official to ratify a transfer.

Transaction Steps

 

Seller

Buyer

Comments

Pre-agreement

Draft contract for sale

 

Negotiate contract for sale

 

Respond to pre-contract enquiries

 

Explain acts appearing on searches.

Investigate title

 

Carry out searches

 

Make enquiries

 

Negotiate contract for sale

The parties may enter into a confidentiality or exclusivity agreement but this is uncommon.

 

Pre-contract searches may be limited to planning.

 

 

Signing to closing

Respond to post contract enquiries

 

Satisfaction of any conditions to closing e.g. consents, clearance forms, declarations etc.

Raise post contract enquiries

 

Draft deed of transfer

There is a standard set of enquiries raised post contract.

 

It is a matter for the buyer to draft the deed of transfer but it is not uncommon for an agreed form to be attached to the contract for sale.

Closing

Execution of deed of transfer and signing of agreed declarations

 

Discharge of security

 

Explain acts appearing on searches

Carry out searches

 

Review closing documents

 

Payment of purchase price

 

 

Post-closing

Deal with queries arising on registration which may have been the subject of an undertaking to the buyer.

 

Stamping

 

Registration of title

Unless, the deed of transfer is a lease, it is a matter for the buyer's solicitor to stamp.

Mexico Small Flag Mexico

The usual process for a commercial real estate transaction includes pre-contractual arrangements, the purchase and sale agreement contained in a public deed, and recording the public deed with the Public Registry.

Pre-contractual arrangements (heads of terms, letters of intent, term sheets, etc.) may be binding if the parties so provide in the corresponding documents. Arrangements prior to title transfer that are often binding between the parties consist mainly of promises to purchase or sale agreements subject to conditions precedent.

Except in the State of Quintana Roo, title transfer occurs at the moment the parties agree upon the essential elements of the sale (identification of parties, description of real property and price/consideration) and the agreement is formalized before the notary public. For title transfer to be effective as against third parties, the public deed must be recorded with the Public Registry. In the State of Quintana Roo, however, the record of the public deed with the Public Registry is required for title transfer to occur.

Please find below a table with relevant steps and responsible parties for closing a commercial real estate transaction:

Transaction Steps

Seller

Buyer

Comments

Pre-agreement

· Preparation of draft sale and purchase agreement

· Negotiation of sale and purchase agreement with buyer

· Provide buyer with documentation for due diligence process

· Due diligence

· Buyer conducts a search in public registries (please refer to answer to question 7 above).

· No prescribed form of agreement but industry standard terms

· Appraisal of the property prior to the transfer agreement

Signing to Closing

· Satisfaction of any conditions to closing

· Arrangement of purchase price funding (including any third party debt)

· Satisfaction of any conditions to closing

· A deposit of part of the purchase price is typically paid on signing which will be forfeited if the buyer fails to complete sale

· Escrow instruments may be used to secure full payment upon satisfaction of conditions to closing

Closing

· Repayment of any existing debt and discharge of mortgage (if any)

· Execution of transfer agreement

· Execution of transfer agreement

· Payment of purchase price

· A notary public must formalize the transfer.

Post-closing

 

· Payment of real estate acquisition and other related taxes

· Registration of transfer at the Public Registry

· The registration duties depend on the transaction price and the place where the land is located. Notary publics usually arrange this step.

The Netherlands Small Flag The Netherlands

There are several ways in which the ownership of real estate can be acquired in the Netherlands. The ownership can be directly acquired (the buyer acquires the ownership or a real right regarding the real estate), the legal structure in which the ownership is regulated can be acquired (share transaction, acquisition at the level of the holding company or acquisition of a contractual position), or bank loans (secured or unsecured) related to the real estate can be acquired, also known as a loan‐to‐own strategy.

Real estate purchase transactions
A real estate purchase transaction consists of several phases. It must first be determined what type of real estate will be acquired: multitenant real estate, offices, retail/shopping centres, residential real estate, new developments or development locations. Before or while determining the type of real estate, advisors must be engaged who have specific knowledge of that type of real estate, such as a commercial advisor, a legal advisor (lawyer/civil‐law notary) or a tax consultant, who will then supervise the transaction.

The next phases involve the actual purchase of the real estate. In the vast majority of purchase transactions a letter of intent or heads of terms is first signed with the owner. The buyer's advisors then perform a due diligence investigation and a survey of the state of repair of the real estate.

Once the due diligence investigation and a survey have been completed, the negotiations on the real estate contract are commenced and, after the real estate contract has been signed, the purchase transaction is completed by transferring title to the real estate.

Real estate sales transactions
A real estate sales transaction also consists of several phases. The first phase involves an investigation of the market, the setting up of a data room and the performance of a due diligence investigation by the owner in consultation with its legal and commercial advisors. The outcome of the investigation determines what issues have yet to be optimised, changed or solved, such as the question whether or not a lease should be extended or technical problems should be solved before the real estate is actually placed on the market. If applicable, it must also be discussed with the financier on what conditions it is willing to cooperate in releasing the security. Then the sales documentation is drawn up, such as the investment memorandum, a letter of intent or heads of terms, and the real estate contract.

When the data room has been set up and the sales documentation has been completed, the actual sales phase commences. The commercial advisor engaged sends the investment memorandum to potential buyers. The next phases are similar to a real estate purchase transaction as described above, starting with the letter of intent or heads of terms.

Points for attention
All real estate transactions have their own specific points for attention. The points for attention in a commercial transaction are the scope of the due diligence investigation to be performed, the firmness of the guarantees to be issued or stipulated, the security to be provided by the buyer (deposit, bank guarantee or group guarantee) and the distribution of the risks between the signing of the real estate contract and the transfer of title to the real estate.

Transaction Steps

Seller

Buyer

Comments

Pre-agreement

· Possible vendor due diligence

· Preparation of draft sale and purchase agreement

· Negotiation of sale and purchase agreement with buyer

· Due diligence

 

· No prescribed form of agreement but industry standard terms

Signing to Closing

· Satisfaction of any conditions to closing

· Arrangement of purchase price funding (including any third party debt)

· Satisfaction of any conditions to closing

· A deposit of up to 10% of the purchase price is typically paid on signing which will be forfeited if the buyer fails to complete sale

Closing

· Repayment of any existing debt and discharge of mortgage (if any)

· Execution of deed of transfer

· Execution of deed of transfer

· Payment of purchase price

 

Post-closing

 

· Payment of transfer tax

· Registration of transfer at land registry (by the notary)

· Land Registry registration fee varies

Norway Small Flag Norway

Transfer of real estate will normally include the following elements:

  • There are no general requirements for documentation of the agreement or signing of a contract. A legally binding agreement is established when the parties have agreed on all material terms for the transaction.
  • Heads of terms or a letter of intent are not considered legally binding, the legally relevant question is whether all material terms are negotiated and agreed. Thus, a document with the heading "LOI" or similar may be considered a legally binding contract if all material terms are agreed and included in the document.
  • Thus, in order to ensure foreseeability, it is common to include an explicit reservation that no agreement can be entered into unless signed by authorised persons and/or the agreement is subject to board approval.
  • The market standard terms and conditions dominate the transfer process, but no prescribed form is necessary for transfer of the ownership. In asset deals, where the title is registered in the land register, a prescribed deed must be used for the registration.
  • However, no notary or other official authority is necessary to ratify the transfer of ownership (as the registration in the land register only is relevant in asset deals and in order to protect against third party interests).

Transaction Steps

Seller

Buyer

Comments

Pre-agreement

· Real estate agent engagement

· Vendor due diligence, or a more limited preparation

· Bidding process, including document of acceptance

· Negotiation of sale and purchase agreement with buyer

· Preparation of a bidding document

· Due diligence

· Legal, financial and technical examination of target company and its assets

· Arrangement of purchase price funding (including any third party debt)

· No prescribed form of agreement but industry standard terms

Signing to Closing

· Satisfaction of any conditions to closing

· Satisfaction of any conditions to closing

Closing

· Execution of transfer agreement

· Refinancing of any existing debt and discharge of mortgage (if any)

· Execution of transfer agreement

· Payment of purchase price

· No prescribed form of agreement but industry standard terms

Post-closing

 

· Shareholder`s meeting with election of new board members

· Payment of stamp duty land tax (asset deal)

· Registration of transfer at land registry (asset deal)

· Maximum Land Registry registration fee 2,5 % of purchase price + NOK 525

Romania Small Flag Romania

After a due diligence exercise identifies potential risks and remedies, the parties usually sign a Sale Purchase Pre-Agreement in front of the notary public. The Sale Purchase Pre-Agreement will usually contain certain conditions precedent that have to be fulfilled by the buyer or the seller before the main Asset Sale-Purchase Agreement is executed.

After the conditions precedent are completed or waived by the competent party, the execution of the main Asset Sale-Purchase Agreement is performed before a notary public, the date of the agreement’s execution usually being the date of the real estate transfer. The notary public usually handles subsequent land book registration formalities. As a last step, the purchaser registers ownership with the fiscal authorities.

Russia Small Flag Russia

Transaction Steps

Seller

Buyer

Comments

Pre-agreement

· Assistance in providing information for legal due diligence.

· Due diligence

· Preparation of a draft Purchase agreement

 

· No prescribed forms or standard market terms

· Heads of terms are not binding except for temporary exclusivity conditions.

Signing to Closing

· Satisfaction of conditions precedent

· Arrangement of transaction funding

· Satisfaction of conditions precedent

· A purchase contract is executed by the parties’ authorised officers.

· Notarisation is not mandatory, although possible if the parties so agree; in practice, this happens very rarely.

· No prescribed form of transfer document.

 

Closing

· Satisfaction of conditions precedent

· Payment of purchase price

 

· Ownership title transfer recorded in the Realty Registry

Post-closing

· Satisfaction of conditions subsequent (in any)

· Assistance to the buyer with transfer of the leasehold over public land (if applicable) and utilities supply (if required)

· Satisfaction of conditions subsequent (in any).

· Formalising lease rights to public land (if any)

· Formalising utilities supply (if required)

· Notices to tenants (if any)

 

· Recording of title transfer with the Realty Register normally takes 15 – 30 days.

· The Realty Registry charges a nominal fee of approx. USD 300 per property for recording title transfer.

Sweden Small Flag Sweden

Real estate transactions are often enacted through structured bid auction processes led by professional brokerage firms. On the Swedish and Nordic market there are a few dominant brokers or corporate finance houses, of which many in recent years have become part of larger international firms, such as JLL, Cushman & Wakefield, CBRE etc., though there are still a few large independent Nordic firms such as Brunswick Real Estate, Pangea etc.

In such processes, the transactions are typically initiated by the distribution to selected investors of an IM, the collection of indicative bids and the selection of a short list of bidders, of which one bidder will be given exclusivity for a certain period of time through a non-binding LOI or heads of terms. In certain cases, from time to time, two or three bidders are invited to compete during the first phase of negotiations, with limited DD and a first round of comments to the seller’s SPA. Normally, this requires the seller to carry an amount of sunk transaction costs for the unsuccessful bidders. Other transactions, arguably quite a few, are made off market through direct contacts between seller and buyer. Sweden contains quite a transparent and transaction intense real estate market, which regularly involves repeat business or restructuring second sales after larger transactions. In addition, it is not uncommon – specifically in larger transactions – for different investors to form bid consortiums together, for instance combining international capital with local asset management or development knowledge.

Negotiations and drafting may be conducted in Swedish or English, depending on the parties’ needs. Other languages are very rare in drafting. International investors are well advised to use local representatives. Legal documentation is by tradition relatively short, compared to Anglo-Saxon standards, but has under international influence become more extensive during recent years.

Completion may rely on different market standard conditions precedent to closing, such as approval of the transaction by the parties’ boards, sufficient buyer financing or authority decisions (e.g. regarding land parcelling measures gaining legal force and the enactment of a new detailed development plan). The need for other authority decisions, such as clearance from the competition authorities in Sweden or the EU, is limited, depending on the size of the transaction. The actual completion measures at closing of the transaction are completely within the control of the parties (seller and buyer).

Normally, the financing banks will attend the closing meeting or prepare relevant documentation in advance. Thus, there is no need for third-party notarisation or similar formalities at closing, irrespective of whether the transaction is a direct property transfer or a transfer of the shares in a property owning SPV. However, certain closing and post-closing actions, such as necessary registrations with the Swedish Companies Registration Office or the Land Registry will require involvement of different authorities.

Transaction Steps

Seller

Buyer

Comments

Pre-agreement

· Preparation and negotiation of LOI/ heads of terms

· Preparation of draft sale and purchase agreement

· Negotiation of sale and purchase agreement with buyer

· Due diligence, as outlined above

· Typically short and essentially non-binding, with indicative industry standard terms and conditions

Signing to Closing

· Satisfaction of any conditions to closing

· Preparation of closing documents

· Arrangement of purchase price funding (including any third party debt)

· Satisfaction of any conditions to closing

· Deposit/escrow arrangements are typically not demanded from a financially strong buyer

· A deposit of 10-20 % of the purchase price may however be required if the buyer lacks sufficient financial strength. Such deposit is paid on signing and will be forfeited if the buyer fails to complete the purchase

Closing

· Repayment of any existing debt and discharge of mortgage (if any)

· Execution of transfer agreement

· Closing documents, such as power/s of attorney, leases and other relevant material, are handed over to the buyer

· Execution of transfer agreement

· Payment of purchase price

 

Post-closing

· Preparation of closing balance sheet and calculation of final purchase price

· Satisfaction of post-closing obligations, if any

· Registration of new BOD and other company formalities (in case of indirect transfer)

· Payment of stamp duty on land acquisition (in case of direct transfer)

· Registration of title with Land Registry (in case of direct transfer)

· Payment of stamp duty on new mortgages

Switzerland Small Flag Switzerland

The sale and transfer of a real estate is only valid if executed in the form of a public deed in front of a notary public. The notary public acts for both parties but is generally chosen by the buyer, as the notary’s fees are paid for by the buyer.

Any terms and conditions, such as representations and warranties, relating to the sale of a real estate must also be contained in the deed of sale. Any undertaking to buy real estate, subject to certain conditions, must also be signed in the form of a public deed. A promissory sale agreement which would be privately signed will not be enforceable against the seller should the latter default on selling the real estate after all the conditions have been met.

Nevertheless, for the sale of commercial real estate, in practice the parties will often start by signing a letter of intent providing the buyer with a certain period of time to conduct its due diligence process and confirm its intention to acquire the real estate. During such period, the seller will generally give an exclusive right to the buyer to acquire the real estate at a certain price. Should the seller default on selling the real estate to the buyer at the end of the exclusivity period, letters of intent often contain penalty provisions. At the end of such period, should the buyer confirm its intention to acquire the real estate, the parties will sign a deed of sale, a deed of deferred sale or a deed of promissory sale (as the case may be) in front of a notary.

Generally, a commercial real estate transaction will go through the following steps:

Transaction Steps

Seller

Buyer

Comments

Pre-agreement

 

·   Negotiation of sale and purchase agreement with buyer

·   Due diligence

·   Arrangement of purchase price financing, if any

·   At the end of the due diligence, preparation of a draft sale and purchase agreement by a notary

·   For the pre-agreement phase, the parties will generally sign a letter of intent

Signing to Closing

·   Execution, in front of a notary of a deed of sale, or of a deed of promissory sale as the case may be

·   Satisfaction of any conditions to closing, if any

·   Execution in front of a notary of the deed of sale, or of a deed of promissory sale, as the case may be

·   Satisfaction of any conditions to closing, if any

·   In case of a promissory sale or deferred sale, a deposit of up to 10% of the purchase price is generally paid to the notary’s account on the signing of the deed which will be forfeited if the buyer fails to complete the sale

Closing

·   Execution of a request of transfer for the land registry

 

·   Execution of a request of transfer for the land registry

·   Payment of the remaining part of the purchase price, stamp duty land tax and any costs/ taxes related to the sale of the real estate

·   Upon closing, the notary will immediately proceed with the registration of the transfer at the land registry

 

Post-closing

·   Repayment, through the notary out of the sale price, of any existing debt

·   Discharge through the notary of the mortgage, if any

 

·   Payment of stamp duty land tax

·   Registration of the transfer at the land registry by the notary

·   Upon registration of the deed of sale with the land registry and execution of post-closing actions, the notary will release the remaining amount of the sale price to the seller

 

Turkey Small Flag Turkey

In Turkish law, there is no difference between the transfer of commercial real estate and residential real estate.

In principle the transfer of the real estate may only be performed at the Land Registry Office where the real estate is located and before the authorized government officers. However, with the development of technology, the sale agreements now can be signed in a different Land Registry Office and the relevant documents are sent online to the Land Registry Office where the real estate is located. A sale agreement signed simply between the Parties or a sale agreement signed in front of the Notary Public would not be valid. On the other hand a preliminary contract for sale of a real estate should be concluded at the Notary. This kind of agreement grants the parties some rights such as demanding the sale of the real estate and the payment but would not transfer the ownership directly. In case the preliminary sale contract is annotated in the land register, the real estate cannot be subject to sale to the third party, pledged or mortgaged for the following five years. The buyer can force, including filing a lawsuit, the owner of the real estate to transfer the title to him, if the conditions in the contract are met. A pre-sale contract, which is conducted in simple form, will not prevent the owner from transferring the real estate to a third party. The buyer can claim damages (and a penalty, if included in the agreement) but will have no right to force a third party to transfer the title to him/her.

Additionally, according to the Appeal Court Decisions, in case at least 90% of the building's construction is completed, the buyer can demand the transfer of the real estate even if the pre-sale agreement is only signed simply among the parties.

There are only two transaction steps in the Turkish Law; Pre-agreement and Closing.

Transaction Steps

Seller

Buyer

Comments

Pre-agreement

Negotiation of sale and purchase agreement with buyer

Due diligence

 

Should be signed before the Notary to be valid.

Closing

Applying to the Land Registry

Payment of purchase price

Payment of relevant fees

Registration of transfer at land registry

The necessary documents to be submitted should be prepared carefully.

Brazil Small Flag Brazil

The process for transferring commercial real estate varies in accordance with the characteristics of transaction. In Brazil, the most usual one is the direct purchase of commercial real estate with the purpose of real estate development. As a rule, for such purchase, the process encompasses 3 steps: (i) execution of the purchase and sale commitment or of the exchange of properties agreement (depending on the type of transaction), (ii) real estate due diligence, and (iii) execution of public deed of purchase and sale or exchange of properties (exchange of the plot of land for future commercial units to be developed and built on the property).

In the contracts of purchase and sale or exchange of properties commitment and public deed of purchase and sale or exchange of properties, except for the termination provisions contemplated in Law and in such agreements, all of the terms are binding and must be complied with. This is due to the pacta sunt servanda principle, under which,, once the parties have entered into an agreement, it must be honored and complied with.

In this sense, by market practice, there are terms and conditions that are usually included for the purposes of referred transactions of real estate purchase, such as: (i) representations of the parties, each one stating its lawfulness, the owner party stating that the commercial property is in good standing, as well as the regularity of the deed of property thereof, (ii) description of the property and the way it was acquired by the selling party, especially for effects of registration of the contract in the real estate record, (iii) obligations and responsibilities of the parties, (iv) miscellaneous , amongst others.

The real estate sector is subject to a number of formalities. Accordingly, in order to carry out a valid transfer of commercial properties, the acquisition title must comply with the public format (when the property’s transaction value overcomes 30 minimum wages in force at the time in Brazil), i.e., the transfer must be made by public deed (by any means of acquisition: purchase and sale, exchange, payment in kind etc.) drawn up by the notary public of a Notary Office, in order to have full faith and credit. Furthermore, at the end, the public deed must be registered in the real estate record with the competent Real Estate Registry Office, so that the purchaser finally and formally obtains title of the real estate property.

Transaction Steps

Seller

Buyer

Comments

Pre-agreement

·         Negotiation of sale and purchase commitment agreement with buyer

·         Preparation of draft of sale and purchase commitment agreement, or review when draft is provided by buyer

·         Negotiation of sale and purchase commitment agreement with seller

·         Preparation of draft of sale and purchase commitment agreement, or review when draft is provided by seller

·         The sale and purchase commitment agreement demands no prescribed form but market standard terms are usually applied

Signing to Closing

·         Satisfaction of any precedent conditions to closing

·         Delivery of due diligence documents to buyer

·         Due diligence

·         Undertake market, environmental and other necessary assessments

·         Arrangements and measures related to the purchase price funding (including any third party debt), when applicable

·         Satisfaction of any precedent conditions to closing

·         A deposit of 10% up to 20% of the purchase price is typically made in advance upon signing the commitment agreement, which will be forfeited if the buyer fails (without cause) to complete the deal

Closing

·         Payment of any remaining debts and discharge of any liens and encumbrances identified in the legal due diligence process

·         Execution of sale and purchase public deed

·         Execution of sale and purchase public deed

·         Payment of purchase price, “ITBI” taxes (as explained further below) and Notary Office fee

·         Not applicable

 

Post-closing

·         Payment of IR tax levied on capital gain

 

·         Registration of transfer before the competent Real Estate Registry Office and payment of registration costs

·         Registration fee varies according to the transaction price

United States Small Flag United States

Transaction Steps

Seller

Purchaser

Comments

Letter of Intent ("LOI")

Hire a broker or self-market the asset for sale.

Depending on the market and level of interest in the asset, the seller's broker may solicit bids from interested purchasers which may then go through multiple rounds of bidding until a potential purchaser is selected.

Review LOI from purchaser and negotiate same.

Prepare and aggregate due diligence materials (title documents and property information, including leases, financial information, service contracts, existing third-party reports) for distribution to potential purchasers. Prior to such distribution, it is common for sellers to require that a potential purchaser execute an agreement to keep such information confidential.

Prepare and negotiate LOI.

Review and negotiate confidentiality agreement, if applicable.

Review any due diligence materials provided by the seller.

The purchaser to consider and solicit proposals for financing.

There is no prescribed form of LOI but industry standard terms.

The LOI is generally not binding except for specifically agreed upon terms such as the existence of a broker, confidentiality and, in some cases, an agreement by the seller to exclusively deal with the purchaser for a specified period.

In some cases (usually where time is short and the deal is relatively straightforward), the parties dispense with the negotiation of a LOI and proceed "to contract". In such a case, the seller will instruct its lawyer to prepare a draft purchase and sale agreement for review by the purchaser and its lawyer.

Increasingly, most of the due diligence materials are hosted on a secure website known as "virtual data rooms."

Purchase and Sale Agreement (the "PSA")

The seller's attorney to prepare drafts of PSA and closing documents.

Negotiate PSA, deed and other closing documents with the purchaser's lawyer.

Review and negotiate PSA and closing documents.

If the purchase is not subject to a due diligence contingency period (see Q7 above), carry out due diligence and commission title report, survey of the property, and other third party reports.

If the purchase is subject to a due diligence contingency period, then carry out limited due diligence to assist with negotiation of PSA.

There is no prescribed form of PSA but market standard terms.

Most states have specific rules on the wording for the type of deed to be used and the items that must be present in order for it to be in recordable form.

 

Signing to Closing

Satisfy any seller conditions to closing.

Obtain any third party consents or approvals, if applicable.

If the property is subject to financing that is not going to be assumed, then request payoff letter or arrange for the assignment of the existing mortgage to the new lender, as applicable.

Prepare closing statement and agree on apportionments.

At signing, pay deposit into escrow with title insurance company or seller's lawyer.

Finalize sourcing debt and equity capitalization for payment of purchase price.

Satisfy any purchaser conditions to closing.

Review closing statement and agree on apportionments.

A deposit of not more than 10% of the purchase price (less in larger transactions) is typically paid into escrow on signing which will be forfeited if the purchaser fails to complete the sale (unless failure was due to the seller's fault) or if the purchaser has a right to terminate.

Closing statement deals with the apportionment of real estate taxes, rental income, arrears, service contracts, and other expenses.

Deeds (and any other documents to be recorded in the real estate records) must be notarized (or if executed outside of the U.S., notarized in a U.S. embassy or notarized by a local notary with an apostille).

Closing

Use of purchase price proceeds to pay off any existing debt.

Delivery of deed and any other closing documents.

Arrange closing phone call or meeting with escrow agent, lawyers for purchaser, seller's lender, and purchaser's lender for dating of documents and release of funds.

Pay into escrow balance of purchase price as adjusted by apportionments.

Satisfy purchaser's lender's loan conditions precedent and execute loan documents.

Execute closing documents.

Attend closing phone call or meeting with escrow agent, lawyers for seller, seller's lender and purchaser's lender for dating of documents and release of funds.

If closing is "in escrow," all closing funds and documents will be sent to escrow agent to be held by them and then distributed upon the satisfaction of specific conditions.

 

Post-closing

If not provided at closing, provide purchaser with tenant lease files and any keys to the property.

Close all utility accounts for the property that are in the name of the seller.

Remit any rents received by the seller from tenants that relate to the post-closing period.

If applicable, file any notices required by any government agencies.

Send notices of sale executed by the seller to tenants, service contractors, and any other applicable third party.

Transfer (or open new) utility accounts for the property.

The title insurance company will arrange for recording of the discharge of the seller's mortgage, the deed, and the purchaser's mortgage documents. If it was serving as escrow agent, then it will also arrange for distribution of original sets of closing documents to the purchaser and seller. While the title insurance company may not record the documents on the day of the closing of the transaction, the title insurance company will insure the purchaser for the gap period between closing and recording.

In cases where some of the amounts that need to be apportioned cannot be determined at the time of closing, those amounts are typically apportioned based on an estimate and then re-apportioned post-closing once those amounts are able to be determined.

United Kingdom Small Flag United Kingdom

Transaction Steps

Seller

Buyer

Comments

Heads of terms ("HoT")

·  Prepare and negotiate HoT

·  Produce sales pack comprising title documents and property information (e.g. if property let, leases, tenant arrears and service charge details)

·  For leasehold property where landlord's consent required, consider approaching landlord for consent in principle to transfer

·    Negotiate HoT

·    For leasehold property where landlord's consent required, collate relevant information about buyer and any guarantor, such as accounts and references and provide to seller

·   HoT not binding save for agreed exclusivity and confidentiality provisions

·   Most sale packs are hosted on virtual data sites

·   For leasehold property landlord must respond in principle to consent request within reasonable time (usually 4 weeks) assuming all required information on buyer provided. Documenting consent thereafter will take at least 6-8 weeks

Preparation of sale agreement

·  Prepare draft agreement

·  Prepare draft property transfer deed

·  Prepare any ancillary documents (e.g. if property let, assignment of rent arrears and rent deposits and, if property new building, assignment of construction documentation)

·  Negotiate agreement

·  For leasehold property where landlord consent required, submit application for consent and negotiate form of consent. Where confidentiality is a concern this stage may be delayed till after signing of the sale agreement.

·    Carry out legal due diligence (see Q7)

·    Buyer will arrange a valuation and structural survey

·    Negotiate agreement and ancillary documents

·    For leasehold property where landlord's consent required, negotiate form of consent. If consent not obtained before signing, closing of sale will be conditional on obtaining landlord's consent

·   No prescribed form of agreement but industry standard terms

·   Land Registry prescribed form of transfer deed

·   For leasehold property where landlord's consent required, the terms of the consent are regulated by a mixture of the provisions of the lease and various statutory provisions. A landlord will typically require its costs to be paid and very often will require the seller to guarantee the buyer's performance of its leasehold obligations under an authorised guarantee agreement ("AGA")

Signing to closing

·  Satisfy any seller's conditions to closing

·  Agree redemption statement and arrangements with current lender for discharge of mortgage on closing including execution of Land Registry discharge form

·  Agree apportionment schedule

·  Execute transfer deed and ancillary documents

·  For leasehold property, finalise and execute landlord's consent to transfer and any ancillary documents (e.g. AGA)

·    Pay deposit to seller's lawyer

·    Arrange funding including third party debt

·    Satisfy any buyer's conditions to closing (e.g. ensuring that releases for all seller's mortgages are produced on closing)

·    Agree apportionment schedule

·    Execute transfer deed and ancillary documents and give to seller's lawyers

·    For leasehold property, finalise and execute landlord's consent to transfer and any other ancillary consent documents (e.g. parent company guarantee for buyer)

·   A deposit of up to 10% of the purchase price is typically paid on signing which will be forfeited if the buyer fails to complete sale (unless failure was due to the seller)

·   Apportionment schedule deals with rental income, arrears and service charge

·   Transfer deed to be executed in accordance with Land Registry requirements (e.g. wet ink signature). Legal opinion required if buyer is a non-UK entity. Notarisation not required

·   All parties including seller's lender must be represented by a conveyancer (type of English & Welsh qualified lawyer) or must provide other evidence of identity

Closing

·  Use price to pay off existing debt

·  Hand over transfer deed, ancillary documents and Land Registry discharge form

·  Arrange completion phone call/meeting with lawyers for buyer, seller's lender and buyer's lender for dating of documents and release of funds

·      For leasehold property, pay landlord's costs for consent

·    Pay balance of price plus/less apportionments to seller's lawyers

·    Satisfy buyer's lender's loan conditions precedent

·    Attend closing phone call/meeting

·    Complete buyer's mortgage documentation

 

·   Loan condition precedents will require preparation in advance of Land Registry application forms and an undertaking from the buyer's lawyers to make the applications and pay any SDLT (see Q14)

·   Loan condition precedents will also require a Land Registry priority search with at least 20 working days priority from closing

Post-closing

·  Pay seller's lender mortgage redemption monies if not sent at closing

·  Send rent authority letter to tenants with new payment instructions

·  Transfer tenants' rent deposits to buyer

·    Pay SDLT and file SDLT return

·    Apply to Land Registry to register release of seller's mortgage, the property transfer and the new mortgage

·    Serve all notices of assignment, including on the landlord where the property is leasehold

·    If property leasehold and mortgaged, serve notice of charge on landlord

·        Set up bank account for tenants' rent deposits

·   SDLT must be paid within 30 days of closing

·   Land Registry will not accept application without proof SDLT paid

·   Land Registry application must be made within the priority search period

·   Maximum Land Registry registration fee £910

·   Registration takes 4-6 weeks

Bulgaria Small Flag Bulgaria

Transaction Steps

Seller

Buyer

Comments

Pre-agreement

 

·         Preparation of draft sale and purchase agreement;

·         Negotiation of sale and purchase agreement with buyer, signing a preliminary contract;

·     Due diligence report;

·     Review of the title documents and the history of title- who have been the former owners of the property;

·     Certificate for the lack of incumbencies, issued by the Register Agency, including  information for judicial claims are entered for the property;

·     Check in the commercial register regarding the status of the seller, its enterprise, insolvency or liquidation proceedings, registered pledges on its shares etc.

·     Certificate from the local administrative bodies and the agricultural land commission for lack/existence of restitution claims regarding the land;

·                     Certificate from the Central register of the Registered Pledges showing lack/existence of registered pledges with respect to the property;

·                     Requesting a Sketch/ Cadastral map and Excerpt from the Cadastral register from the Agency of Geodesy, Cartography and Cadastre Checks  with respect to the property;

·                     Requesting a Sketch from the local municipality showing plans and zoning provisions  with respect to the property (recommendable);

·     Drafting and signing a preliminary contracts with conditions to closing;

·            The preliminary contract is signed by both parties and can be enforced and transformed into a final contract upon decision of the court;

·            A deposit of the purchase price is typically paid on signing the preliminary contract which will be forfeited if the buyer fails to complete sale;

Signing to Closing

·         Satisfaction of any conditions to closing;

·     Satisfaction of any conditions to closing;

·     Arranging the financing of the deal;

 

Closing

·         Repayment of any existing debt and discharge of mortgage (if any);

·         Execution of transfer agreement;

·     Execution of transfer agreement  by the parties before a Notary public;

·     Payment of purchase price;

Registration of transfer at Land register with the Register Agency is done by the notary public;

The registered copies are received by the parties in the office of the Notary public after their registration at the  Land register with the Register Agency

Post-closing

 

·     Payment of stamp duty land tax, notary tax and fees for entry of the notary deed into the Land register;

 

·    Maximum notary tax for issuance of the notary deed – 6000 BGN;

· As per the law taxes and fees usually are to be divided between the parties, however it is common the buyer to pays them all;

In order to transfer title over real estate in Bulgaria the parties must execute the deal in the form of the required document for transfer of title – usually a notary deed, which is then entered into the Land register. Notary deeds are signed always in front of a notary public, who has the responsibility to check the ownership documents, presented by the seller. However, the notary public will not review the title history for the property and whether the rights of the seller are acquired from a previous lawful owner of the property. This part of the due diligence process although not obligatory, is often done by lawyers assigned by the buyer.

Very often the parties decide to sign the so called preliminary contract. This is done mainly in case one of the parties or both need more time for preparation before the final transfer of ownership – such as securing funding, cleaning the land, providing additional documents and certificates, etc. The preliminary contract has three important characteristics: 1) if one the parties refuses to sign the notary deed for the final transfer of the property, the other can ask the court to declare the sale contract for final based on this preliminary contract; 2) it stipulates the terms and conditions for closing the deal. The contractual clauses are freely determined by the parties (as far as such clauses do not contradict the law) and their content depends on the specific case; 3) the parties can envisage contractual penalties if certain conditions/obligations/milestones for closing the deal are not met.

France Small Flag France

The first step in a commercial property transaction is often to sign a letter of intent to set out key terms of the transaction and, to secure exclusivity, when possible, in order to allow for particular investigations to be made by the purchaser.

The terms and conditions of the letter of intent shall be drafted with appropriate care since (i) in theory a sale is ‘perfect’ (i.e. ‘binding’ between the vendor and the purchaser), under French law, as soon as there is agreement on the subject matter and on the price, and (ii) either prospect may claim damages in case of a ‘breaking off’ of the precontractual negotiations in an unlawful manner.

When an asset deal, the purchasing procedure is usually set in two phases, with first (i) the signing of a promissory deed subject to conditions precedent, which will give the vendor the time to obtain a waiver of the town's pre-emption right, when applicable, and then (ii) the closing of the transaction with the signing of a proper final conveyance deed that shall be registered with the Land Registry.

For that purpose, the deeds must be drafted by a French notary (‘notaire’), which is vested with prerogatives of official authority received from the State and is therefore empowered to authenticate deeds by affixing his seal and signature. Only transfers of property consigned in a “authenticated deed” (i.e. drafted by a notary or approved by the court) will be registered with the Land Registry. In practice two notaries are almost always involved in the transaction, appointed by each party.

The purchaser will normally pay a deposit (although this is not compulsory) to the vendor or, preferably, to a stakeholder in the region of 5 to 10% of the purchase price when signing the promissory deed.

The promissory deed may take the form of a call option (in which case the deposit will be considered a ‘reservation indemnity’) or of an already binding agreement for both parties (in which case either party will keep the right to ask for a judicial enforcement of the transfer of the property if the other party refuses to sign the final conveyance deeds necessary for the registration of the sale once the conditions precedent are all fulfilled).

When a share deal, the sale and purchase agreement will not be registered with the Land Registry and is therefore usually drafted by a French lawyer.

Although no pro-forma documents are prescribed, all deeds and agreements follow roughly the same pattern designed by the market practice and the legally prescribed information of the purchaser on the condition and history of the property. They will include at least, the basic vendor’s guarantee of the ownership of the property and of the genuineness of the information disclosed in the data room.

Transaction Steps

Seller

Buyer

Comments

Pre-agreement

·         Preparation of draft sale and purchase agreement(s)

·         Negotiation of sale and purchase agreement(s) with buyer

·         Provision of legally prescribed information and diagnosis (asbestos, termites, etc.)

·         Due diligence

·         Technical survey

·         Environmental survey when applicable.

·         No prescribed form of agreement but industry standard terms

·         Deeds are drafted by a French notary when transfer is by way of an asset deal

Signing to Closing

·         Satisfaction of any conditions to closing

·         Includes the obtaining of a waiver of the Town’s pre-emption right when applicable.

·         Arrangement of purchase price funding (including any third-party debt)

·         Satisfaction of any conditions to closing

·         A deposit of up to 5/10% of the purchase price is typically paid on signing which will be forfeited if the buyer fails to complete sale

Closing

·         Repayment of any existing debt and discharge of mortgage (if any)

·         Execution of transfer agreement

·         Execution of transfer agreement

·         Payment of purchase price

·         For asset deals, transfer taxes and fees are collected and paid directly by the notary.

Post-closing

 

·         For asset deals, registration of transfer at Land Registry and payment of the registration fees.

·         For share deals, registration of the transfer at the tax administration and payment of transfer taxes and notification to the company.

·         For asset deals registration is ensured by the notary.

Hong Kong Small Flag Hong Kong

After preliminary negotiations occur and both parties settle on a price, a "provisional agreement", which is legally binding on the purchaser and vendor, is drafted and entered into. It must be complied with and, if not replaced within the stipulated time by a formal sale and purchase agreement, may be relied on to govern the rest of the transaction or to sue for compensation for breach of contract. An initial deposit is usually paid on signing.

Such a provisional agreement usually contains the following terms:

  1. address of the premises;
  2. price of the premises;
  3. details of the parties ;
  4. amount of the initial deposit (industry practice being 1 to 3 percent) to be paid on the signing of the provision agreement;
  5. amount of the further deposit (industry practice being 10 percent inclusive of the initial deposit) to be paid on the signing of the formal sale and purchase agreement);
  6. when the formal sale and purchase agreement is to be signed;
  7. the completion date (on which the vendor disposes of the property to the purchaser);
  8. stipulating that the balance price is to be paid by the purchaser of the aforementioned completion date;
  9. the apportionment of legal expenses and stamp duty between the party;
  10. the amount of commission payable to the estate agent by the purchaser and/or vendor;
  11. liability for breach of agreement; and
  12. an escape clause providing for a date before which either party may withdraw from the transaction.

The purchaser's solicitors will then draft a formal sale and purchase agreement base on the results of the due diligence exercise. Once both parties agree to the form and content, it will be executed and registered at the Land Registry.

On the date of completion, the purchaser hands over the balance of the purchase price in exchange for a duly executed document of transfer (otherwise known as deed of assignment). All other title deeds and means of access (e.g. keys) are delivered to the purchaser, unless the property is bought via a mortgage in which case the title deeds will be furnished to the purchaser's mortgagee. The assignment will also be stamped and registered at the Land Registry.

There is no prescribed form of transfer in Hong Kong. The typical legal document involves a provisional sale and purchase agreement, a formal sale and purchase agreement and a deed of assignment which must all be in writing, duly signed and attested, stamped and registered at the Land Registry.

Spain Small Flag Spain

Transaction Steps

Seller

Buyer

Comments

Heads of terms ("HoT")

·  Prepare and negotiate HoT

·  Produce information pack comprising title documents and property information (e.g. if property let, leases and ancillary documentation, planning, licences, municipal taxes)

 

·    Negotiate HoT

·    Appoint advisors

·   HoT not binding save for agreed exclusivity and confidentiality provisions

·   Most information packs are hosted on virtual data sites

 

Preparation of sale agreement

·  Prepare draft private sale and purchase agreement (in case there is signing and closing)

·  Prepare any ancillary documents (e.g. notifications to third parties, condominium of owners, etc.)

·  Negotiate agreement

 

·    Carry out legal due diligence (see Q7)

·    Negotiate agreement and ancillary documents

 

·   No prescribed form of agreement but market standard terms

·         In some cases the acquisition documentation is drafted by the buyer's lawyers

·         In some cases the transfer of the property is completed in a single stage (only closing, without signing a private sale and purchase agreement)

Signing

·         Execute the private sale and purchase agreement

 

·         Secure the granting of the notarial transfer deed by means of a bank guarantee (securing payment back of the part of the price paid by the buyer)

·         Execute the private sale and purchase agreement

 

·         Pay part of the purchase price to seller

·         Up to 10% of the purchase price is typically paid on signing, which will be forfeited if the buyer fails to complete sale (unless failure was due to the seller)

 

Signing to closing

·  Prepare draft notarial transfer deed

·       Fulfilment of any seller's conditions prior to closing

·  Agree arrangements with current lender for discharge of mortgage upon closing

·          Arrange funding including third party debt

·    Fulfilment of any buyer's conditions prior to closing

 

·         In some cases the acquisition documentation is drafted by the buyer's lawyers

 

 

Closing

·  Execute the notarial transfer deed

·   Use price (or relevant part of it) to pay off existing debt

·  Execute the cancellation of mortgages deed

·      Delivery of the asset to the buyer (which usually occurs symbolically)

 

 

 

·            Execute the notarial transfer deed

·            Pay the balance of the purchase price

 

·    Execute buyer's mortgage documentation

 

·         Documentation to be formalised before Notary Public and to be filed at the Land Registry for registration

 

·         All parties to attend the closing at the Notary's office appropriately represented by means of duly executed powers of attorney (i.e. notarised and apostilled if any party is a non-Spanish entity)

 

Post-closing

·  Pay fees related to the cancellation of mortgages.

·       Pay Tax on the Increase of Value of Urban Property

·  Transfer tenants' rent deposits to buyer

·       Apply to Land Registry to register, the property transfer and the new mortgage

·    Serve all notices of transfer (to tenants, to any condominium of owners, etc.)

·       Pay relevant taxes (Stamp Duty / RETT)

·       Pay the Land Registry fees.

 

 

·   It is standard practice for the buyer to pay the notarial fees (which can be negotiated with the Notary) but this is subject to agreement between the parties.

    

·        Registration takes 4-6 weeks

Updated: December 11, 2017