Brad Hester, Orlando Commercial Real Estate Lawyer

My name is Bradley Hester and I created this site. As a real estate attorney, a lot of real estate deals come across my desk. I have been surprised and, sometimes, dismayed, at some of the real estate basics that are overlooked in the drafting of real estate contracts and during the course of buying or selling a piece of real property. My goal with this web site is to inform and educate commercial real estate investors and other real estate professionals by sharing some of the lessons I've learned in my practice of real estate law and other experience I've gained as a farmer and businessman. This is, of course, just my two cents and nothing you read on this website is intended to be or should be relied upon as legal advice applicable to any specific situation. However, I hope the general principals you read about here are helpful to you in your own career and real estate dealings. Weigh-in with a comments or just to let me know what you like, dislike, agree with or disagree with, please. I'd love to hear from you.

About Brad Hester

Former Florida dairy farmer turned real estate attorney; Architecture and MBA degrees from University of Florida ('87 and '90) (Go Gators!!); Law degree from University of North Carolina-Chapel Hill ('00) (Go Tarheels!!); Now practicing law at Frank A. Hamner, P.A., in Winter Park, Florida.

Due Diligence in Florida Commercial Real Estate

What you should actually be doing during a due diligence period.

As a potential Buyer of Florida commercial real estate, you know that you should include a “due diligence” period in your contract so you can analyze the condition of the property and its adequacy and feasibility for your intended use. But you may have questions, such as:magnifyloan

  • What are “best practices” for due diligence?
  • How long should the due diligence period last?
  • What protections should you include?
  • What specific types of investigations should you conduct?

Look Before You Leap: Why Due Diligence Is Important

Buying commercial property in Florida exposes you to certain risks. For instance, if you purchase a property that is contaminated by environmental waste either due to prior uses on the property, potentially even uses on other property resulting in the migration of environmental waste to your property, you may be liable for cleanup and damages, even though you didn’t cause that spill or even know about it before you bought the property. The potential costs could be staggering.

The moral is: Conduct due diligence to find out as much as you can about the property you intend to buy to identify potential risks and make an informed decision to buy or not to buy the property.

Timeframe

You and the Seller must negotiate the timeframes for the Seller to disclose any information that have and are willing to turn over to the Buyer and for the Buyer to conduct their due diligence. Typically, the commercial contract will require the Seller to turn over all prior surveys, reports, environmental assessments, plans and other key documents within five (5) days after the effective date of the contract. These documents will usually give the Buyer as basis on which to begin analyzing the property. How long the Buyer’s due diligence period should be depends entirely on the existing and proposed use of the property, the Buyer and Seller’s comfort level with each other and other factors. For example, the due diligence period for a vacant parcel of agricultural land that has never been developed and for which the Buyer has no particular development plans may be as short as thirty (30) days, if there is one at all. However, if the Buyer intends to develop that land into a residential subdivision, the Buyer may require a months-long due diligence period, and perhaps a year or year and a half before closing in order to obtain all their development approvals, permits, and other necessary precursors to development. Likewise, if the property is already being used for some industrial use or is in close proximity to industrial uses, the Buyer may require a long due diligence period in order to conduct extensive environmental assessments and other investigations.

What to Do

During due diligence period, depending on your intended use of the property, you may need to investigate the following, just for starters:

  • Current and Future Zoning;
  • Availability of Permits;
  • Availability of Utilities;
  • Status of Current Leases, if income producing;
  • Boundary Disputes, Encroachments and other matters of survey;
  • Flood Zones;
  • Setbacks;
  • Usable Acreage;
  • Availability of Casualty and Flood Insurance;
  • Termite/Wood Destroying Organisms Damage;
  • Environmental Problems and Remediation;
  • Restrictions on the Possible Uses of the Property;
  • Other specific concerns about the property.

An experienced Florida commercial real estate lawyer can help you understand what tests and inspections to conduct to help you make an informed decision and minimize your risks.

What If You Can’t Complete Due Diligence in Time?

If your due diligence period is expiring and you have not finished all investigations you believe to be necessary or desirable, it is often possible to negotiate an extension with the Seller. Even if doing so means having to pay an additional deposit or allowing all or a portion of your deposit to become non-refundable, it is generally wiser to err on the side of caution rather than rushing to make a decision without complete information. Avoid pulling the trigger on the deal unless you’re convinced of its merits or, at minimum, are comfortable with the potential risks involved and be prepared to walk away if necessary. Letting what appears to be a promising deal go may be better than proceeding to closing only to find out later that the property isn’t suitable for your proposed use or that you are responsible for cleaning up a decades’ old fuel spill or dry cleaning fluid leak, or removing a long-buried fuel tank, that you had no idea existed.

Real Estate Title Insurance

Who usually pays for title insurance?  and …   Who picks the closing/title agent?  As an Orlando Real Estate Lawyer, these are two of the most common questions I get from Buyers and Sellers during contract negotiations.  This is how I usually explain it:

Homeowner’s Title Insurance

realestate400In residential transactions, the Seller almost always pays for the title search and the owner’s (i.e. the buyer’s) title insurance policy, although, technically, it is a negotiable item.  And, generally, the party paying for the title search and the owner’s title insurance policy is entitled to select the closing/title agent, although that, too, is a negotiable item.  The Buyer (via the closing/title agent most often selected by the Seller) always pays for any simultaneous issue of the loan title policy insuring the buyer’s mortgage for the benefit of their lender.  The lender may also request specific endorsements to the policy. However, those costs are typically small compared to the premium for the owner’s title insurance policy.

SELLER PAYS FOR:

  • Title Search
  • Owner’s Title Insurance Premium
  • Select’s Title Agent/Closing Attorney

BUYER PAYS FOR:

  • Loan Title Policy
  • Endorsements required by Lender
  • may be charged a closing administrative fee

Commercial Real Estate Title Insurance

Like residential matters, it’s commonly accepted in commercial transaction that the party paying for the title search and the owner’s title insurance policy is also entitled to select the closing agent/title agent.  Also, as in residential matters, that party is most often the Seller and, again, typically the Buyer will pay for a simultaneous issue loan title policy insuring its Lender’s mortgage and for any endorsements required by its Lender.  However, these items are negotiated much more often in a commercial setting than in a residential one, for several reasons.

 

First and foremost is, of course, the cost of the title insurance premium.  Depending on the purchase price of the property, the owner’s title insurance premium can be a significant amount, making it worth the effort to negotiate who will pay for it in larger transactions.

 

Second is the desire to control the course of the closing.  In some cases, perhaps it’s anticipated that the closing will be complicated or contentious for some reason, either the Seller or Buyer places a premium on the right to select the closing/title agent and is willing to pay for the owner’s title insurance policy in order to do so.  By selecting the closing/title agent of its choice, the Buyer or Seller can select their own attorney, who may also serve as the escrow agent for the Buyer’s deposit, ensure the timely delivery of the title commitment to the Buyer, prepare the closing documents and so on, thereby maintaining a degree of control over the preparation, manner, timing and place of closing.

 

Third is simply the desire to direct the title premium to your attorney as a means of paying for their title and other services.  Often the attorney collecting the title premium will discount their attorney’s fees somewhat to compensate, at least in part, for the title premium they are going to collect in addition to their attorney’s fees.  If that’s the case, it becomes possible for the paying party to gain control of the closing by selecting their own attorney as closing/title agent, while at the same time paying somewhat less than the full cost of both the attorney’s fees and the title insurance premium.

 

Of courses, the best of both worlds is to negotiate for the other party to pay for the title insurance but still agree to let you select the closing/title agent.  That doesn’t happen very often but is not unheard of, especially when one of the parties is less sophisticated (i.e. hasn’t read this article!) than the other or really doesn’t care who the closing/title agent is.

 

In loan closings, such as refinances, where there are only a Borrower and Lender involved, typically the Lender selects its own attorney as the closing/title agent, although the Borrower is required to pay for the Lender’s attorney’s fees and the loan title insurance premium.

 

Florida Title Insurance

To recap, the general rule where in the State of Florida is that, in most real estate transactions, the Seller pays for the title search and the owner’s title insurance premium, selects the closing/title agent and, therefore, controls most aspects of the closing.  However, in commercial matters, generally, and in larger or more complicated matters (either residential or commercial) where the cost of the title insurance itself and the ability to control the closing become more significant factors, the parties are much more likely to negotiate a different result.

Reps and Warranties in Orlando Real Estate Contracts

warranty

What are Reps and warranties in real estate contracts

The “Reps and Warranties,” as they’re commonly referred to, are a more important part of a commercial real estate contract than most Buyers and Sellers realize. Many Buyers and Sellers regard the reps and warranties merely as part of the “boilerplate” legalese inserted by attorneys (a) to justify their fee, and (b) to complicate things for the sake of complicating things. That’s just not true. A large part of what your attorney should be doing for his or her client when drafting a contract (or reviewing a contract prepared by someone else) is to include provisions that protect the client from unnecessary risk and that benefit the client by putting him or her in a more advantageous position. The Reps and Warranties section is one place in the contract where the attorney can make these things happen.

First, some explanation on how reps and warranties differ and whether that even matters. A “representation” is a statement of present or past fact made to induce someone to enter into a contract. For example, “the Seller is not in default under any indenture, mortgage, deed of trust, loan agreement, or other agreement to which Seller is a party and which would have an adverse effect on any portion of the Property.” A “warranty” is a promise that a particular fact is true. For example, “the Property is and will continue to be, from the date hereof through the time of closing hereunder, free from all mechanics’ liens and any rights to mechanics’ liens.”

The difference between representations and warranties

Now, what’s the difference? Case law and legal articles about reps and warranties that are directed at attorneys do distinguish between the two, in a legal sense, because the remedies available for fraudulent misrepresentation versus a breach of a warranty differ significantly. If a representation is made that the representing party (usually the Seller) knows to be false that the receiving party (usually the Buyer), believing it to be true, relies upon to their detriment, a claim can be made for fraudulent misrepresentation and the damaged party may be able to sue to rescind the contract, obtain restitution and possibly even receive punitive damages. Pretty serious stuff. In our example above, if the Buyer incurs due diligence and other costs in reliance on the Seller’s statement before learning that the Seller is actually in default under their mortgage and the Seller’s lender is foreclosing on the property, the Buyer could potentially sue to recover their costs and terminate the contract. In our other example, however, if it is discovered that there is a mechanics’ lien on the property the Seller likely would just have to take whatever action necessary to remove the lien, such as paying the contractor in full. In other words, they would have to make the warranty true but would not necessarily be at risk of the Buyer terminating the contract or suing for damages.

From a practical perspective, however, I’m not sure this all matters a lot to Sellers and Buyers entering into a real estate contract. For one, the representations and warranties are usually lumped together as the “Representations and Warranties” rather than being specifically identified as one or the other, and sometimes they are even grouped together in a long list of items that may be identified as “Representations, Warranties, Covenants and Conditions.” It can be hard to decide what is what and, depending on how they are worded, many of the statements could be interpreted to be more than one thing – a representation, a warranty and maybe even a covenant. In other words, it may ultimately depend on a court’s ruling as to whether a particular statement is a rep or a warranty or whatever and to determine the appropriate remedy.

Risk allocation in real estate contracts

More importantly, as far as Buyers and Sellers are concerned, this is really all about (a) risk allocation (more so from the Seller’s perspective,) and (b) information gathering (more so from the Buyer’s perspective.) Typically, a sophisticated Seller will want to limit their risk by making as few representations and warranties as possible and, instead, forcing the Buyer to bear the burden of learning all they can about the property on their own. An extreme example of this would be an absolute, “as-is, where is” contract in which the Seller makes no representations or warranties about the property. On the other hand, a sophisticated Buyer will want to have as much assurance as possible that the Seller really does own the property and that the contract is enforceable against the Seller. The Buyer will also want to get a jump-start on their due diligence by gathering as much information as possible about the property from the Seller and limit their risk by availing themselves of certain remedies if they are misled or if the Seller fails to make good on their warranties.

Boilerplate reps and warranties

Most often, as in most things, the end-result is something in the middle. The Seller will make the reps and warranties it can truthfully and comfortably make within their own risk tolerance, while the Buyer will require certain basic representations that, if false, would be “deal-killers” from the their perspective and will also seek to gain as much information about the condition of the property as it can before expending funds on its own due diligence. Achieving this type of risk allocation while protecting the client, be it the Buyer or Seller, is one of the attorney’s primary roles in drafting the commercial real estate contract or reviewing any contract prepared by the other party. Don’t disregard the reps and warranties as mere “boilerplate.” There’s a lot more going on there than you may realize.

Exclusive Use and Non-Compete Clauses in Commercial Leases

Orlando Real Estate Lawyer Offers Caution When Using Exclusive Use Clauses

Picture of a commercial lease signingWhether you’re a shopping center landlord or a would-be commercial tenant, consider – but use caution – adding an “exclusive use” clause or a “non-compete” clause to your commercial property lease in Orlando. These terms are sometimes used interchangeably but make more sense to me defined as follows:

“Exclusive use”

Exclusive use provisions are typically requested by the tenant and are intended to prohibit the landlord from leasing space in the shopping center to businesses similar to the tenant’s. The obvious reason is that the tenant wants to limit to the greatest extent it can competition from competing businesses. Thus, the landlord grants to the tenant the right to some “exclusive use” within the shopping center.

“Non-compete” clause

A non-compete provision is typically requested by the landlord and can limit the activities of the tenant in at least two ways. First, the provision can be used to prevent the tenant from selling products or services that compete with other tenants in the shopping center who may have exclusive use provisions in their leases that would be violated if such activities were allowed. Second, particularly where the tenant is going to be paying percentage rent (i.e. a portion of the rent is based on the amount of the tenant’s sales), the provision can be used to prevent the tenant from establishing a competing business or franchise within a certain geographic area that may cannibalize sales from the subject property, thereby reducing the percentage rent payable to the landlord. Thus, the tenant agrees that it will forego certain activities so as not to compete with other tenant’s sales or, in the percentage rent scenario, its own sales.

These provisions are sometimes difficult to negotiate (depending on the relative bargaining power of the parties) and are difficult to enforce in the event of a violation unless they are very clearly drafted by an Orlando real estate lawyer. For example, the use or service that is at issue is often hard to define, making it the subject of a potentially protracted negotiation on the front end or a potentially disputed matter later on. For instance, let’s say that you want to lease space to operate a cupcake shop. You certainly wouldn’t want a competing cupcake shop next door, but what about a chocolate shop? An ice cream store? Do you have the negotiating power to require the landlord to exclude all businesses selling desserts of any kind? Probably not, but you get the idea. The important point is that it’s an issue that has to be addressed when the lease is negotiated and the more clearly the use or service is defined the easier it is to categorize excluded or permitted competing uses.

The same issue arises in the context of non-compete provisions. Suppose you enter into a lease for the operation of a yogurt shop, you are paying percentage rent and your lease prohibits you from opening a competing store within two miles. The landlord certainly wouldn’t want you to open a competing yogurt shop close by, but could you open an ice cream shop? Snow cones? Italian ice? The same analysis could apply to electronics (which could include computers, computer games, computer parts, computer accessories, etc.), spa services (which could include spa treatments, skin treatments, manicures, pedicures, massages, maybe even a hair salon that offered some of these services) or any other broad category of uses or services. The answer depends on what was negotiated before the lease was signed. In the event of a violation and resulting litigation, the Court may ultimately have to decide what was intended to be excluded and what was intended to be permitted. Not a position you want to be in.

Another difficult issue to address is what happens when a violation occurs. How do you calculate damages if the damages are the amount of sales lost to a competing business if sales are also dependent on numerous other factors? If the landlord violates the exclusive use provision and allows a competing use, should the tenant’s rent be reduced? By how much? Should the tenant be entitled to terminate the lease and move elsewhere? Could the tenant obtain an injunction against the other tenant to stop the competing use? Could that tenant then sue the landlord? Sure they could. Almost anybody can sue almost anybody!

These and other concerns should be addressed and negotiated before the lease is ever signed. By involving your attorney early in the lease negotiation process you can improve your chances of obtaining an exclusive use provision or non-compete clause that you can live with, at minimum, or that protects your interests and maximizes your business prospects long term, at best. In addition, a clearly drafted exclusive use provision minimizes confusion and conflict when the question arises as to whether a particular use is excluded or permitted or an alleged violation occurs.

Historic Orlando Office Building For Sale

I didn’t realize this building was for sale until I drove by it the other day.  I’ve always liked the vibe of this retro style building from the 1940’s.  Great location and proximity to Orange County Courthouse as well.

The CNL Commercial Real Estate group has listed 141 N. Magnolia Avenue.  Built in 1940, this building boasts approximately 15,000 sq/ft with a fully ADA compliant first floor restroom.  It has been renovated twice in the last decade: 2003 and 2005.  The roof was replaced in 2012 and windows in 2005.

The most recent tenants of this building was a law firm, and there is a full basement currently used for file storage but can host five to six cars.  Land to the east has an additional 4-5 parking spaces for customers or employees.

Composed of two floors, the building is block concrete exterior with hardwood floors, recently upgraded millwork and a complete sprinkler and alarm system that is up to current industry building code.  A shower facility is available as is an elevator that is routinely inspected and certified.

The building is zoned AC/3A by the city and sits on approximately .375 acres.  Hotels, restaurants, banks and other institutions are located within a short drive or walking distance.

The building is for sale for $1,860,250.00($125.00 sq/ft) or lease at $11.50 NNN.  To see this property or to make an offer, contact Nick Poole or Jason Schrago at CNL Commercial Real Estate in Orlando.

Top 10 List of Tallest Buildings In Orlando

Orlando, Florida was once a sleepy, small central Florida city surrounded by orange groves and a few other things. When the Disney company moved part of its operations there, many other theme parks and associated industry followed, taking this once sleepy town to a thriving economic juggernaut for the Florida economy. Orlando has, in the years, grown significantly beyond strictly the tourism industry and is now home to some of the tallest skyscrapers in the Southeast.

At 426 feet tall, the Vue at Lake Eola is the third largest skyscraper in the area and is located in downtown Orlando. Composed of penthouses and condominiums for residential, midtown living, the penthouses are on the top floors and feature access to the 36th floor and balcony.
Slightly, and only two feet, taller than the Vue is the Peabody Orlando. One of the premiere hotels in Orlando, this hotel boasts 1,641 rooms and 31 stories. Built in 1986 and renovated to fresher, newer standards of hotel occupancy and technologies in 2010, it now has a second expansion tower to accompany the original.

Rounding out the top three buildings and the largest building not only in Orlando but in central Florida is the SunTrust Center of the SunTrust Bank organization. Standing at an impressive 441 feet, it was built as the headquarters for SunTrust Banks in Florida.

The complete Top 10 List of Tallest Buildings In Orlando

  1. SunTrust Center, 441 ft, 30 fl, blt 1988
  2. The Peabody Orlando Expansion Tower, 428 ft, 31 fls, blt 2010
  3. The Vue at Lake Eola, 426 ft, 35 fls, blt 2007
  4. Orange County Courthouse, 416 ft, 24 fls, blt 1997
  5. Bank of America Center, 409 ft, 28 els, blt 1988
  6. SeaWorld SkyTower, 400 ft., Viewing Tower, blt 1973
  7. 55 West on the Esplanade, 377 ft., 32 fls., 2008
  8. Solaire at the Plaza, 359 ft., 30 flrs., blt 2006
  9. Dynetech Centre, 357 ft., 31 flrs, blt 2008
  10. Orlando International Airport Control Tower, 346 ft., Control Tower, blt 2002

 

Other notable tall buildings in Orlando are:

Citrus Center, 280 ft., 18 flrs, blt 1971
Premiere Trade Plaza Office Tower II, 17 flrs, blt 2006

Orlando Real Estate Market On The Rise

Orlando Commercial Real Estate Market Statistics Improving

 

Is now the right time to invest in commercial real estate in Orlando, Florida? The property market, both domestic and commercial, has been highly volatile since the start of the economic crisis. People are scared to invest in anything, particularly commercial properties. Considering the public has little money to spend, investing in commercial property seems incredibly risky, since a large proportion of newly starting businesses fail and go under very rapidly. However, it seems some good news is on the horizon.

After a precipitous decline in 2008 and a faltering recovery since then, the Florida housing market appears to have returned to a growth path this year.

Research economists aren’t sure if this is a true recovery,or rather a quick up tick in prices or part of just the first wave of a full blown recovery. So, it seems that the time to buy commercial properties in Orlando, Florida, is here.

Orlando Is Back in Businesses

A great example that proves the growth in the commercial real estate market in Orlando is found in the Lake Nona area. Whenever you attend this part of the city, you will notice that new businesses have been added and that the face of the area has changed yet again. This is a wonderful positive development .

The Orlando City Council on April 8 approved Lake Nona Land Co. LLC’s master plan for a 17-acre office park near the fast-growing biotech hub of Medical City. The estimated $85 million project includes 570,000 square feet of general office space in three buildings, a 150-room hotel and two 10,000-square-foot restaurants, along with 2,830 parking spaces in two parking structures and surface parking lots.

And that is just part of the good news, as restaurants and shopping centers are also being developed. Residential real estate has already been on the rise for some time now in Lake Nona, but the commercial side of things is now picking up.

Orlando, Florida Commercial Real Estate Statistics

For those who like and understand numbers, the following statistics should help you even further. Various statistics are being collated, with Jones Lang Lasalle  providing regular statistics on offices and industries, to name but a few. According to their research, which is always well received and highly truthful

Orlando’s seasonally adjusted unemployment rate dipped 10 basis points from July to August. At 8.5 percent, Orlando’s Metro unemployment rate dipped to a post-recession low and 190 basis points below its rate one year ago. Moreover, nonfarm payrolls expanded by a moderate pace of the 12 month period as employers added a total of 26,400 new jobs, amounting to a 2.8 percent expansion of nonfarm payrolls.

This is but a part of the positive news however. It seems that the rate of direct vacancies is down, the rate of vacancies is down and the leasing activity is up. Similar pictures are seen across the other areas monitored by Jones Lang and Lasall as well, showing a highly promising future for the young boy. The local economy is becoming stronger and stronger ant his is mainly found in the construction industry, making that a particularly interesting area of commerce and businesses.

A number of companies who held off on investing in commercial real estate in Orlando are now actively considering a number of properties. All the statistics and information tell us that you will be able to get a great deal on your piece of commercial land, whether you want to use it to build your own business, or whether you want to buy it with a business included and rent it out.