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If you are purchasing or refinancing a piece of commercial property, there are several special considerations you may need to take into account. Here are 5 tips that may help you be better prepared for your closing.

  1. Learn your lender's requirements.

Each lender has its own unique requirements for particular transactions. Even if you refinance commercial properties frequently, you should take steps to learn and understand all of your lender's requirements as soon as possible. In some cases, you may need to act quickly to get all requirements met by your date of closing. For instance, some lenders require a survey for a new loan while others do not. Requirements can also vary according to the amount of the transaction.

  1. Don't wait to get subordination agreements signed by tenants.

If you are purchasing or refinancing a commercial space with multiple tenants, make sure that you know what your lender's requirements are in terms of subordination agreements with those tenants. Lenders often require that tenants sign subordination, non-disturbance, and attornment agreement (SNDA) documents before closing. The purpose of a SNDA agreement is to set out the terms of the relationship between the lender and the tenant in the event of tenant's default or foreclosure.

SNDAs are an important factor to keep in mind when planning out the logistics of a closing. If your tenant is a large corporation, it will likely take a full 30 days to get a signed SNDA. Many corporate tenants often require use of their own SNDA form. If that is the case, then you will have to coordinate with the bank to make sure that the tenant's documentation is acceptable.

  1. Does the lender require an opinion of counsel letter? That takes time.

If the loan amount is high enough, your lender may require an opinion of counsel letter. This means that the bank is asking the attorney to review their documents to determine if all provisions are valid and enforceable and then draft an opinion letter. This process can take a long time, and typically costs the borrower a significant sum of money. Ask your lender up front if this is a requirement of the loan.

  1. Make sure you know who is authorized to sign at closing.

Your governance documents must be in good shape so you can accurately determine who is authorized to sign closing documentation. Know if you are going to have to get written consent from all of the members and managers of the LLC ahead of time. Getting signatures from busy individuals who often spend a significant amount of time travelling can prove to be difficult. The larger the number of members and managers, the more difficult this will be.

This can be a particular concern for doctor's practices. For example, consider a practice with forty partners that are all members and managers of the LLC that owns the real estate. If the entity’s operating agreement says a vote is required before the entity can refinance its property or get a loan, it can take time to coordinate all forty schedules in order to have everyone together to hold the vote or get a unanimous written consent. This is why it is so important to know what your governing documents say about consent and knowing who is authorized to sign before you set your closing date.

Even if your documents clearly state that the manager is authorized to sign for this entity, your lender may have its own requirements that must be abided by. If your closing attorney must fulfill the opinion of counsel requirement, your attorney will likely require a unanimous consent from all members and managers, regardless of what the operating agreement says.

  1. Gathering lien waivers will require effort and coordination.

Acquiring lien waivers for commercial buildings can take a great deal of effort and coordination. Lien waivers will need to be acquired from all contractors who performed any kind of work to the property or delivered any materials in the 120 days leading up to closing. A lien waiver is a legal document in which a contractor states that it has been paid for the work that it did and that it waives any rights to place a lien against the property.

Tracking all of the work that has been done on a commercial building, and then getting lien waivers from all parties right before a closing or a refinance can be a challenge. Have a plan in place. If you plan to refinance the commercial property every few years, have a process in place to document all work that is done in the building on an ongoing basis, and contact information for the contractors who performed the work.

Lindsay Parris Thompson focuses her practice on commercial and residential real estate, land use, and matters involving property owner associations in North Carolina. Since joining the Van Winkle Law Firm in 2008, Lindsay has represented banks in commercial financing transactions and assisted developers and other landowners in contract negotiations, acquisitions and sales, leasing, financing, due diligence, zoning, title matters, and real property disputes. In addition, she has provided legal counsel to property owner associations in preparing restrictive covenants and amendments, enforcing and collecting fees and assessments, and managing their unique corporate-governance issues.