The real estate aspect of a merger or acquisition is often complex, but can operate in a similar manner to a traditional real estate transaction. If you find yourself in the midst of such an deal, the issues can be complex, and a general review of a real estate implications in the M&A context would be make for a fairly tedious read. However, by way of general information, we have taken the liberty to outline a few practical to consider when you are presented with an opportunity to include land, building(s), or both in your next merger.
It is critical to understand what obligations you may be taking on with the property, and careful review of these considerations should feed your decision to seek a deed rather than a lease. In some cases, it might be better to fully assume the property’s obligations because that, at the least, confirms you will be paying off the debt of the property and can fully claim that it is your responsibility.
For those parties who want to tie up as many loose ends as possible and prevent the possibility of confused parties and litigation, taking the hard road of assumption may help them out. There’s a good chance you will be assuming the debt anyway if you expect to receive a general warranty deed on the property. However, if it’s simply a lease, the current owner of the property would remain the owner. This could give you the best of both worlds—utilizing the land and/or building(s), but not having to carry full responsibility for its debt(s).
REAL ESTATE TITLES AND DEEDS
Should you choose to include the purchase of real estate within your acquisition, what will be the condition of the land and/or building(s) your company receives? Perhaps more importantly, will you actually buy the land and/or building(s) or is it more fiscally responsible to lease it from the opposite party? Knowing the type of title you will receive on the property is paramount.
Know the difference between being given a General Warranty Deed (grantor guarantees to grantee that the grantor fully owns clear title to the property) and a Quitclaim Deed (grantor does not promise or guarantee the grantee that the grantor owns the property in any way). The former would give you full rights and possession to the property whereas the latter represents nothing more than grantor backing away from the property, and, for all you know, the grantor isn’t the rightful owner of the property. Know what you intend to buy from the grantor, and negotiate it properly.
It’s likely that there is already an escrow agent on board with the negotiations and is holding all funds that will be used to effectively carry out the operation, but if not, you will certainly want to have one both sides agree on hiring. The amount of money exchanging hands is probably not the average amount of money spent on one occasion and both sides will want a disinterested, trusted third party to watch over and deliver the contracted amount to each party.
You can either inform your escrow agent to keep separate accounts for the many different purchases—e.g., one account for the intellectual property, another account for human resources, and still another for real estate—or you and the party across the table can decide to hire a separate escrow agent for the real estate transaction. Hiring just one will save each side money, but someone at the negotiation table might express their preference for a separate one “just to keep everything lined up.”
A merger and acquisition is an important step to any business and you don’t want to go in alone. Allow VLF’s business lawyers guide you along the process.