Commercial purchase closing checklist

What are the steps, in order?

1. Form the acquisition entity and prove authority on both sides. Confirm the buying entity exists, is authorized to acquire and to borrow, and that the person signing has authority under the operating agreement. Run the same check on the seller, because an entity that was dissolved or never authorized the sale is a title requirement, not a technicality.Before contract
2. Negotiate the diligence period and the deposit mechanics. A commercial contract usually gives a defined diligence period with a right to terminate, then a deposit that becomes non-refundable. Every other item on this list has to fit inside that window, so set it against the survey and environmental turnaround, not the other way around.At contract
3. Order an ALTA/NSPS land title survey. An ALTA survey shows improvements, encroachments, easements, access and parking against the record. It is what supports the survey-dependent endorsements, and it is the long lead item on almost every commercial file.Week 1 of diligence
4. Order the Phase I environmental site assessment. A Phase I is a records and site review. Where it finds a recognized environmental condition, a Phase II with sampling follows and the schedule changes materially. Lenders on commercial property require the Phase I regardless of the buyer’s own view.Week 1 of diligence
5. Confirm zoning, use and the certificate of occupancy. Confirm the actual use is permitted under the zoning resolution and matches the Certificate of Occupancy. Where the use rests on a variance, a special permit or a legal non-conforming status, obtain the paper and read its conditions, because those conditions run with the property.Diligence
6. Collect the tenancy package: leases, estoppels and SNDAs. Get every lease with amendments, a rent roll certified by the seller, and an estoppel certificate from each tenant confirming rent, term, security deposit and no defaults. A lender will separately require subordination, non-disturbance and attornment agreements from the material tenants.Diligence to closing
7. Order the title report and negotiate the endorsements. On a commercial file the endorsements matter as much as the policy: zoning, access, contiguity, survey, comprehensive and, on an entity acquisition, non-imputation. Each has to be supported by the survey or the record, so raise them while the survey is still open.Diligence
8. Address bulk sale and tax clearance obligations. Where a business and its assets transfer with the property, New York bulk sale notification protects the purchaser from the seller’s sales tax liability. Missing the notice can make the buyer answerable for taxes it never collected.2 weeks before closing
9. Reconcile the adjustments and the tenant obligations. Commercial adjustments run deeper than taxes and water: prepaid rent, security deposits transferred with interest, unpaid tenant improvement allowances, free rent periods still to be delivered, and leasing commissions. Each is a credit at closing or an assumed liability afterward.1 week before closing
10. Verify wire instructions and coordinate the disbursement. Confirm every wire by telephone at a number obtained independently, including the payoff and the escrow account. Commercial closings move larger sums through more accounts, and a redirected wire on a commercial file is rarely recoverable.Closing
11. Record, then complete the post-closing obligations. After recording, deliver tenant notice-of-attornment letters, transfer utilities and service contracts, file the transfer tax returns, and confirm the assignment of leases and rents recorded alongside the mortgage.After closing

Which documents do you need?

• Purchase and sale agreement with the diligence period and deposit mechanics
• Entity formation documents, operating agreement, good standing certificate and authorizing resolutions for both sides
• Bargain and sale deed, or a special warranty deed where the contract calls for one
• Assignment and assumption of leases and rents
• Assignment of service contracts, warranties and permits
• Tenant estoppel certificates and a certified rent roll
• Subordination, non-disturbance and attornment agreements for material tenants
• Bulk sale notification filing where business assets transfer
• ALTA/NSPS survey and the surveyor’s certification
• Phase I environmental site assessment, and Phase II where indicated
• Owner’s policy with the negotiated endorsement package, and a lender’s policy
• TP-584, RP-5217NYC and the NYC transfer tax return, plus any transfer of a controlling interest filing
• FIRPTA certification from the seller entity

Which searches does this transaction call for?

• Title search on the full chain, including deeds into and out of predecessor entities
• Judgment, federal tax lien and state warrant searches against the seller entity and its principals
• UCC searches at the New York Department of State and at the county against the seller entity
• Bankruptcy and receivership search against the seller entity
• Franchise tax and corporate standing search, both states where the entity is foreign
• Environmental records review, including the state spill incident database
• DOB, OATH (formerly ECB), HPD, fire and DEP searches on the premises
• Zoning and certificate of occupancy review, including variances and special permits
• Open permit and sign-off search on all prior alteration work
• Patriot search against every entity and principal

What else should you read before closing?