USA Law and Practice Contributed by: Richard L. Rosen, Leonard S. Salis and Dennison Marzocco, Rosen Karol Salis PLLC
2.4 Real Estate Due Diligence A contract for the purchase of commercial real estate typically provides for a due diligence peri - od in which the prospective buyer may engage in the following activities: • inspection of the physical property, including an environmental inspection; • review of financial information pertaining to both income generated by the property and the costs and expenses of operating the property; • review of tenant leases and other rights of occupancy, such as a licence; • obtain a title search and survey; • review local zoning and land use regulations; and • judgment and lien searches. Sellers often require prospective buyers to sign non-disclosure or confidentiality agreements before providing the buyer with documents and financial information during the due diligence period. 2.5 Typical Representations and Warranties Representations and Warranties Commercial properties are frequently sold in an “as is” condition and without representations or warranties regarding the state of title or the condition of the property. During a due diligence period, usually provided as a purchase agree - ment applicable to real property, a prospective buyer usually purchases a title report to ensure that the seller has marketable title and to learn of any encumbrances affecting the property. Pro - spective buyers may also retain professionals, such as engineers, architects and environmental analysts, to assess the property’s condition.
a deed is essential to protect property rights, as unrecorded deeds may be deemed void against subsequent bona fide buyers. Local govern - ments set the recording rules and procedures. Many states and local governments have enact - ed laws that impose a transfer tax (known as a deed, stamp or recording tax) on the sale of real estate. Some jurisdictions impose additional taxes, such as “mansion taxes” , which are based on the selling price of residential properties. Title to real estate may also be transferred pur - suant to the common law principle of adverse possession, in which a trespasser may claim title to another’s land, or portion thereof, if certain conditions are satisfied. The conditions, typically set by state statutory law, generally require that a trespasser occupy the property in an “open and notorious” manner for a defined period of time. Additionally, many states have property condi - tion disclosure laws in connection with the sale of residential properties. 2.3 Effecting Lawful and Proper Transfer of Title A lawful transfer of title to real estate is typically effected by first entering into a written contract of sale. Most US states have a so-called “statute of frauds” , which requires that agreements per - taining to the sale of real property be in writing and signed by the parties. It is common practice for buyers of real estate to obtain title insurance which insures the buyer against loss, in the event that the seller did not have marketable title at the time of the transfer. It also protects the buyer from incurring expenses in connection with any lien that may be recorded prior to the buyer recording the deed.
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