Practice Pointer. The buyer may at times be concerned that the seller has the proper authority to transfer the property. This is usually determined prior to closing and is an important benefit of title guaranty since the title certificate will usually insure the buyer for such matters (whereas not generally covered by the opinion of title).
Practice Pointer. Unlike some states, Iowa does not have an entity transfer tax on the sale of membership interest in an entity. Thus, one benefit of a membership transaction is the seller does not pay the transfer tax, plus there is no recording of the transaction disclosing the purchase price or existence of the sale.
Practice Pointer. There is added risk for buyer in purchasing the membership interest since they will be assuming any liabilities of the entity. This risk is not great for single-tenant buildings where the property is subject to a true NNN lease since owner in that situation is generally not managing the property and only collecting rents. The risk increases significantly if the selling entity is operating and managing the property. Bed bug litigation is an example of potential risk being assumed.
Practice Pointer. Iowa Code section 428A.1 requires that the face of the deed recite the value of any personal property included in the sale of the real estate.
Practice Pointer. Some owners take promissory notes from tenants for unpaid amounts. The buyer needs these assigned at closing plus receipt of the original debt instrument.
Practice Pointer. If the legal description is lengthy and impossible to plot, a survey should be obtained. If survey not obtained, ask the County Auditor to review the legal description during due diligence to make sure the Auditor will not reject the deed at closing.
Practice Pointer. Frontage roads along highways in older industrial parks are often problematic. The roads are usually treated as easements but there are often no maintenance or scope of use provisions. It can be difficult to satisfy the title standards for these properties and risky for buyers that plan to modify or change the use of the property or road.
Practice Pointer. Occasionally the buyer will request a portion of the compensation be characterized as a fee for a covenant not to compete (i.e., xxxxxx agrees not to operate a similar project in the same market). The seller should be aware that such a request likely converts a portion of the capital gain into ordinary income.
Practice Pointer. Mortgages for certain asset classes include detailed assumption of debt provisions. These should be reviewed carefully before signing the purchase agreement to determine the process and costs for obtaining lender’s approval for the assumption. In most cases, if debt is being assumed, the assumption process commences after the initial inspection/due diligence period.
Practice Pointer. Iowa Title Guaranty Commercial will act as the closing agent and hold the xxxxxxx money on any commercial transaction. In my experience they are far better to work with than out of state closing offices, which at minimum require delivery of documents out of state and then utilize in-state agents to record.
