Contract Drafting 2010-03-03

1. Contract Drafting2010-03-03 University of Houston Law Center Spring 2010 D. C. Toedt III

2. Panelists from Schlanger Silver and Thompson Knight Louis Silver Alfred Meyerson Roshni Patel Thad Armstrong

3. Objective of this class session • High-level overview of typical transaction • Survey of documents to be drafted • Selected legal- and business points • NOT: • Equip students to do real-estate deals “solo” • Provide contract forms (but see samples at http://www.OnTechnologyContracts.com/uhspring2010/from SEC’s EDGAR database)

4. Review: Signatures NORTH BY EAST ENTERTAINMENT, LTD., by Northeast Platinum, LLC, its general partner, by: /s/ John Auletta John Auletta, sole member of Northeast Platinum, LLC

5. Hypothetical transaction: sell a shopping center

6. The “players” • The obvious ones: Seller, Buyer • Other important players: • Lender(s) • Anchor tenant(s) • Other tenants • Local government(s) • Quasi-governmental entities

7. Letters of intent

8. Letters of intent • Potentially dangerous • Stmt. of present intention on basic points • Price; timeline; earnest money; brokers; etc. • Conditions precedent – due diligence, etc. • Lock-up? • Expenses of negotiation • Expressly ID binding vs. non-binding terms • Confidentiality? Press release? • One for each phase of deal?

9. Agreement of Purchase and Sale

10. The goal: Closing • Swap deed for $, prom. note, etc. • Old-style closings vs. modern logistics • Signatures – how delivered? • Consideration - ditto • Escrow • Closing instruction letter – brings everything together

11. Some key agreement components • Timeline • Covenants and/or closing conditions • Review: Damages and/or walk-away right • Reps & warranties • Review: Distinction between the two • Anything not apparent from due diligence = rep • Disclosure schedule – exceptions to R&W • Nomenclature: “Schedule 4.7(a)”

12. Some key agreement components • Exhibit forms • Warranty deed – Tex. Prop. Code • Promissory note? • Deed of trust? • Estoppel certificate (signed by tenant)? • Attornment / subordination / nondisturbance agreement (between lender & tenant)? • Bring-down certificate?

13. Timeline: Critical dates in agreement • Closing date • Might be tied to conditions being fulfilled, e.g., receipt of govt. licenses / approvals • Drop-dead date • Title & survey review period – how long? • Inspection period – how long? • When does earnest money become ‘at risk’?

14. Conditions to obligation-to-close • Pre-closing & closing covenants satisfied • Operational covenants • Bring money / bring deed • Seller’s reps and warranties correct (materiality qualifier?) • Good title, etc. – due diligence • “Bring-down” certificate? • Estoppel certificates, etc., from current tenants

15. Money transfer: Mechanics Wire transfer? Promissory note?

16. Covenants • Deliver deed, money, etc. • Buyer consent required for pre-closing: • Amend. or modif. of existing leases • New lease • New title encumbrance • Indemnities • Environmental – how far back does it go? • Others?

17. Covenants • Maintain insurance coverage • Risk of loss • Seller maintains risk of loss till the closing • What happens if the place burns down before closing?

18. Due diligence

19. Title search/policy & related D/D Purpose – why? Searcher – who? Timing – when? Admin. mechanics – how, who pays? Issues to look for – what?

20. Drafting issues: Title • Rep & warranties • Seller has good title • Closing conditions • No problems with title search • Covenants • Deliver signed gen. warr. deed at closing • Indemnities?

21. Survey of the property • 5Ws – who, when, why, where, what • Whom to hire? • Lender desires • Issues to review include: • Flood plain • Soil studies • Platting

22. Drafting issues: Survey • Rep & warranties • Closing conditions • No (unscheduled) encroachments • Covenants • Indemnities?

23. Existing leases • Rent roll • Anchor tenant, smaller tenants • Lease agreements • Conflicting use- and exclusivity provisions • Co-tenancy issues • Termination rights

24. Drafting issues: Leases • Rep & warranties • No tenants in default (except as scheduled) • No disputes, pending terminations, etc. • Estoppel certificates • Covenants • Closing conditions

25. Commercial Leases: Top 10 Things 10: Permitted, prohibited uses 9: Notice and opportunity to cure 8: Consents and approvals not to be unreasonably withheld, conditioned or delayed. 7: Beware of relocation rights 6: Obligations should be conditions and covenants

26. Commercial Leases: Top 10 Things 5: Remedies – exclusive? Cumulative? Self-help? 4: Future needs 3: Options! (Renewal, expansion, termin.) 2: Beginning, end of obligations 1: Consistency!

27. Environmental due-diligence Gowanus Canal, Brooklyn • CERCLA, amended by Brownfields Law • EPA fact sheets – useful summaries • Current owner or operator liability for clean-up costs • Exposure potential for lenders • Strict liability, but …

28. “All appropriate inquiries” due-diligence defense • EPA fact sheet • Hire an ‘environmental professional’ • Licensed, experienced • ASTM standards (American Society for Testing Materials) • Shelf life for investigations

29. Drafting issues: Environmental • Rep & warranties • Closing conditions • Contingency plans • Indemnities

30. Other questions?

31. Homework See the Web site (www.OnTechnologyContracts.com/UHSpring2010)

32. Last question for panelists (With apologies to Wait Wait Don’t Tell Me)