Real Estate

Due diligence is the buyer’s window to investigate the property, usually before the deposit becomes nonrefundable. For an income property it covers title and survey, the leases and tenant estoppels, a Phase I environmental assessment, zoning and certificates of occupancy, the building systems and the operating statements and tax bills supporting the seller’s numbers. Twenty to sixty days is typical, but a longer period may be required where a Phase II or governmental approvals are needed. Often, the buyer may terminate for any reason before the period ends and recover the deposit. In some deals the termination right is narrower and is limited, for example, to environmental due diligence and, more specifically, to a recognized environmental condition, or REC, identified in the Phase I under the ASTM E1527-21 standard. Unless the purchase and sale agreement already covers access, the seller should require an access agreement, insurance certificates and a release for damage caused by testing. Sellers who assemble their reports, leases and title work help the closing process. A seller can deliver those materials without making any representation as to their accuracy or completeness, and the contract should include this language.

The title company issues a commitment listing what it requires before it will insure and the exceptions it will not insure against. The title company, also called the title agent, searches the records and issues the commitment and the policy on behalf of an underwriter, the insurance company that bears the risk under the policy. Routine matters are generally resolved with the agent, but anything unusual, such as insuring over a defect or issuing a nonstandard endorsement, requires the underwriter’s approval and should be raised early. The title review period is also the time to order the survey, because the survey shows where easements, setbacks and encroachments sit, and title objections should be raised against the commitment and the survey together. The contract should set a deadline for the buyer’s title objections and a short period for the seller to cure or decline, with the buyer free to terminate if the seller declines. Sellers are expected to pay off mortgages and other liens of a fixed amount at closing, but many sellers limit their obligation to remove involuntary liens, such as judgments and construction liens, to a stated dollar threshold, with the buyer left to terminate or receive a credit if the threshold is exceeded. Buyers should decide which endorsements they need, such as zoning, access and survey coverage, and a non-imputation endorsement when buying an entity. A lender will have separate title requirements and endorsements for its loan policy, which should be identified early so they do not delay the closing. The buyer customarily pays for the owner’s policy in New Jersey and New York. In Florida the custom varies by county, with the seller usually paying in Palm Beach County and the buyer in Miami-Dade and Broward.

A Phase I is a records review, site visit and interviews performed under the ASTM E1527-21 standard. It identifies recognized environmental conditions but involves no sampling. A Phase II is the soil, groundwater or building material sampling that follows when the Phase I finds something. It takes longer and usually requires the seller’s consent to invasive testing. Lenders generally require the Phase I and will want a Phase II if one is recommended. The buyer should keep the right to terminate if the seller will not allow a Phase II to be performed. In New Jersey, cleanups are directed by a Licensed Site Remediation Professional, or LSRP, a consultant licensed by the State who oversees the remediation and issues the response action outcome that closes it, in place of a DEP approval. An LSRP has statutory reporting duties, including a duty to report an immediate environmental concern to the DEP and, at a site where the LSRP has been retained, any discharge the LSRP learns of. A buyer is not required to use an LSRP for due diligence, and buyers in New Jersey ordinarily have the Phase I and Phase II performed by an environmental consultant who is not acting as the LSRP for the property, so that what the buyer learns stays within the buyer’s control.

The Industrial Site Recovery Act applies when an industrial establishment, meaning a business with a NAICS code covered by the ISRA rules that handles hazardous substances, is sold, transfers its operations or closes. The trigger follows the business, so the sale of a building with an industrial tenant can trigger ISRA for the tenant’s operations. When ISRA applies, the owner or operator must notify the DEP within five days after the contract is signed, retain a licensed site remediation professional and either complete the remediation before closing or proceed under a remediation certification with a remediation funding source in place. Under N.J.S.A. 13:1K-13, a transfer made without compliance is grounds for the buyer to void the sale and recover damages from the seller, after the buyer gives the seller notice of the failure and a reasonable time to comply, and the seller remains strictly liable for the remediation costs. The contract should allocate the work, the cost and the risk of delay. Most retail, office and apartment sales are outside ISRA, but the question has to be asked for any property with a manufacturing or warehouse history.

Commercial contracts include a mortgage contingency less often than residential contracts and sellers often resist including mortgage contingencies in contracts. When a buyer seeks a mortgage contingency, the clause should state the loan amount and the date by which a commitment must be issued. The mortgage contingency should also require the buyer to pursue the loan diligently. If the commitment does not arrive by the deadline, the buyer may terminate and recover the deposit. After the contingency period has passed, the deposit may be at risk whether or not the loan closes. Many buyers negotiate a longer due diligence period instead of a separate mortgage contingency, which gives the lender time to underwrite without a stated financing condition. A seller that accepts a contingency often asks for a larger deposit or proof of equity.

Commercial contracts usually limit the seller’s representations in three ways. The representations survive for a stated period after closing, after which no claim can be brought. They may carry a floor that bars small claims and a cap, often a percentage of the purchase price. Many seller representations are qualified by knowledge. “To Seller’s knowledge” usually means the actual knowledge of a named individual with no duty to investigate. The seller should make sure that the “knowledge party” has no personal liability. Buyers push back on knowledge qualifiers and survival limitations for matters that no amount of diligence can verify. A buyer cannot confirm that the rent roll is accurate, or that no tenant has prepaid rent or claimed a landlord default, until it owns the building, so representations of that kind are likely to be unqualified, because the buyer has no choice but to rely on the seller for them. Florida still applies caveat emptor to commercial property, so a seller generally has no duty to volunteer known defects and a Florida buyer’s protection comes from the representations it negotiates into the contract and the diligence it performs. In New Jersey, Florida and New York, an as-is clause shifts the risk of unknown conditions to the buyer but does not excuse a false statement in the contract itself.

An exculpation clause limits whom the buyer can pursue if the seller breaches. A typical clause provides that the buyer may look only to the seller entity, after closing only up to the liability cap, and never to the seller’s members, managers or affiliates. Most commercial sellers are single-purpose entities that distribute the sale proceeds soon after closing, leaving the buyer no assets to satisfy a claim pursued later. Buyers can respond by negotiating a post-closing escrow or holdback for the survival period, a guaranty from a creditworthy affiliate, or a covenant that the seller will maintain a stated net worth until the representations expire. Buyers usually have a clause limiting the seller’s recourse to the deposit, known as a liquidated damages clause and discussed below.

In New Jersey and New York a closing date is a target rather than a deadline unless the contract says that time is of the essence. Without that language either party is entitled to a reasonable adjournment, and a party that wants a firm date must send a clear written notice fixing a new date that gives the other side a reasonable time to perform. When the contract does make time of the essence, a party that cannot close on the stated date is in default. Florida practice is different. The Florida Realtors commercial and residential contract forms state that time is of the essence, most negotiated Florida contracts follow suit, and Florida courts enforce the clause as written, so a party that misses a Florida closing date without an agreed extension is in default (Arvilla Motel, Inc. v. Shriver, 889 So. 2d 887 (Fla. 2d DCA 2004)). In commercial deals the better practice is to negotiate firm dates with defined extension rights, which may be tied to a fee or an additional deposit.

The usual structure is that a defaulting buyer forfeits the deposit as liquidated damages and the seller has no other remedy, while a buyer facing a defaulting seller may recover the deposit and documented costs or sue for specific performance. New Jersey treats a liquidated damages clause between sophisticated parties as presumptively reasonable, although the presumption can be rebutted (MetLife Capital Financial Corp. v. Washington Avenue Associates, 159 N.J. 484 (1999)), and without such a clause a seller may keep only its actual damages and must return the balance of the deposit (Kutzin v. Pirnie, 124 N.J. 500 (1991)). New York lets a seller retain a deposit of up to ten percent from a buyer who defaults without excuse, even without a liquidated damages clause (Maxton Builders, Inc. v. Lo Galbo, 68 N.Y.2d 373 (1986)). The New York rule applies to residential and commercial contracts alike and most commercial contracts confirm it by making the deposit the seller’s sole remedy. Florida strikes a liquidated damages clause as a penalty if it also gives the seller the option to sue for actual damages (Lefemine v. Baron, 573 So. 2d 326 (Fla. 1991)). Sellers typically require a buyer to bring any specific performance action within 30 to 60 days after the scheduled closing date, and a buyer that does not file within that period waives both specific performance and the right to record a lis pendens against the property. Buyers often ask in return for the right to pursue all remedies at law and in equity if specific performance is unavailable because of the seller’s conduct, for example because the seller has conveyed the property to someone else.

The seller pays the Realty Transfer Fee, which is graduated and reaches $6.05 per $500 of consideration above $1 million, about 1.2 percent. The seller also pays the Graduated Percent Fee, which replaced the buyer’s 1 percent mansion tax on July 10, 2025. It applies to sales over $1 million of Class 4A commercial property, residential property and cooperative units, at rates from 1 percent to 3.5 percent of the entire price rather than the amount over each threshold. Industrial property, apartment buildings and vacant land are not subject to the Graduated Percent Fee, so the property’s tax classification matters. Separately, the buyer of income-producing property must file a bulk sale notice (Form C-9600) with the Division of Taxation at least ten business days before closing or become liable for the seller’s unpaid state taxes. The contract should require the seller to cooperate and to fund any escrow the Division demands.

Florida’s transfer tax is the documentary stamp tax. The deed is taxed at $0.70 per $100 of price, customarily paid by the seller. In Miami-Dade County the rate is $0.60 per $100 plus a $0.45 surtax on anything other than a single-family residence. A buyer who finances pays documentary stamps on the note at $0.35 per $100 and a nonrecurring intangible tax of $2 per $1,000 of the mortgage. Two other items surprise out-of-state buyers. Property taxes reset. Florida caps annual assessment increases on non-homestead property at ten percent for all but school taxes, but a sale, or the cumulative transfer of more than 50 percent of the ownership of the entity that holds title, resets the assessment to just value on the following January 1, so the seller’s tax bill is not a guide to the buyer’s tax bill. And since October 1, 2025, Florida no longer imposes sales tax on commercial rent, which lowers the occupancy cost of every tenant and should be reflected in the rent and expense figures a buyer relies on.

In New York City the combined state and city mortgage recording tax on a commercial mortgage of $500,000 or more is 2.80 percent of the loan amount, with lower rates for smaller loans and outside the City. A Consolidation, Extension and Modification Agreement reduces the tax by limiting it to the new money advanced by the buyer’s lender. The seller’s existing lender assigns its mortgage to the buyer’s lender, which consolidates it with a new mortgage for the balance, and tax is paid only on the new portion of the loan. A purchase CEMA requires the cooperation of the seller and both lenders, adds time and fees, and should be written into the contract, because the seller otherwise has no obligation to participate. The New York State transfer tax and, in New York City, the City’s Real Property Transfer Tax, both customarily paid by the seller, are a separate and significant cost.

An opinion letter (often called an opinion of counsel or a legal opinion) is a formal letter in which an attorney gives a professional judgment on specific legal matters relating to a transaction, addressed to a party other than the attorney’s client so that the recipient can rely on it at closing. In commercial real estate and finance, the most common example is the opinion that borrower's counsel delivers to a lender at a loan closing. A typical opinion addresses whether the borrower and any guarantor are validly formed and in good standing, whether they have the power and authority to enter into the transaction, whether the loan documents have been duly authorized, executed and delivered, and whether those documents are enforceable under the governing state’s law. An opinion is not a guarantee of the outcome of the transaction or of the client’s financial condition. It is a carefully limited statement, subject to stated assumptions, qualifications and exceptions (bankruptcy and general equitable principles being usual examples), and it is read in light of the customary practice of attorneys who give and receive these letters. The scope is usually negotiated between counsel, and the form a lender first proposes is often broader than customary practice supports, so it is important to have experienced counsel review the requested form.

Yes. Our attorneys are admitted in New Jersey and Florida, and we act as local counsel in acquisition, loan and leasing transactions involving property or parties in those states. Local counsel is commonly needed when the principal transaction documents are governed by another state’s law, or when lead counsel is not admitted where the property is located, but the lender or other party still needs comfort on matters of local law. In that role we can review the mortgage, assignment of leases and rents and related security documents for compliance with local requirements, advise on recording, mortgage tax, transfer tax and other closing matters specific to the state, and deliver opinions of counsel on the enforceability of commercial loan documents governed by New Jersey or Florida law. We can also give opinions on the formation, good standing, authority and due authorization of entities organized in those states, whether we represent the borrower, a guarantor, a tenant or another party to the deal. Because our practice is focused on real estate and lending, we are familiar with the forms national lenders and their counsel typically request and with the points those forms usually raise. If you have a transaction that needs local counsel or a legal opinion in any of these states, we are happy to review the proposed form and give you a sense of scope, timing and cost.