I (Marc Jacob) just wanted to share some personal thoughts on this topic since I get called upon to speak about it or weigh in on it quite a bit.  There is quite a bit of danger to a small business going into a new commercial lease.  While that term sheet you approved may look relatively benign, the devil is really in the details, and in the case of commercial leasing, those details are likely to be 20-60 pages long!

To navigate that process, it’s important that you bring in legal counsel early on in the process.  We’ve seen a number of clients give away things in the term sheet they did not have to, and once that term sheet is done, it is hard to get a landlord to open it back up for negotiation…whether it’s considered impolite or amateurish, or perhaps even dishonest no matter how innocently done, I am not sure, but does seem to be the customary way to deal with it in St. Louis.

So here are some basic considerations to consider, and to discuss with your attorney:

1.  Will s/he agree to a flat fee or partial contingent fee to help you out (at least barring any unexpected happening)?
2. How fast will the turnover be before you see their notes or get to discuss the lease review?
3. What is the deliverable? Is it a marked-up lease, a redlined lease, or just a conversation?
4. Will they agree to either conduct the negotiations or help you in the shadows for the same flat fee?

Anyhow, this is a short post, but it is just a topic that has been coming up and since it really is such a danger area for a small business and can cause so much stress, I wanted to share with you at lease some thoughts on how to find the right lawyer to help you.  As a small business owner, your budget is already tight, so it’s better to know up front what this cost will be before getting in too deep.  Also, your lawyer might know which landlords in town are more difficult or likely to be heavy handed and can guide you even before you get to the term sheet stage.

Happy Leasing!

A limited liability company (“LLC”) is an entity that allows the owner (also called a “member”) to maintain control over the entity and in many cases to still have the benefits of “limited liability.”

Limited liability means that the owner/member is not personally responsible for the business’s debts or obligations, except in certain circumstances.

Get your ducks in a row before starting your LLC

In Missouri, LLCs do not require the formalities of a corporation, making it the simplest form of limited liability ownership.

The actual formation of a LLC in Missouri is relative simple. The Missouri Secretary of State allows for online formation.

The more difficult part, however, is operating the LLC properly and complying with state law. For this reason, we do not advise that people setup an LLC themselves or through a discount service.

An LLC owner should:

1. Get proper advice to ensure the LLC’s operations conform to Missouri law;
2. Operate in a manner that does not risk their limited liability protection;
3. Understand the areas of potential liability where an LLC does not protect an owner;
4. Have a proper written operating agreement to protect the member(s) and to meet any applicable Missouri statutory requirements;
5. Clearly lay out the relationships between the parties, if there is more than one member.

In a single-member LLC, Missouri law requires (RSMo. Sections 347.081.1 and 347.015(13)) a written operating agreement. It is not mandated for multi-member LLCs, but strongly advised. Perhaps one reason it is not mandated in multi-member situations is that the parties are more likely to put the agreement in writing for their own protection.

We have seen a number of situations where the lack of a written agreement has led to strife as well as lengthy and expensive litigation. We generally advice all of our clients to make sure they have a clear operating agreement in writing prior to commencing the operation of the business.

If you would like more information on starting your LLC, please contact us at 314.862.2237 or at mjacob@jacob-law.com

A Buyer should show their private home inspection report to their lawyer, so that the lawyer can properly write an inspection notice to protect the Buyer’s interest.

Your Lawyer Can Review the Inspection Notice

When buying a home, an important part of the due diligence process is getting a private home inspection. This inspection helps the Buyer better understand the current state of the house they wish to purchase.

A private home inspector walks through the home, does a visual inspection, takes pictures of things that appear dangerous, are deteriorating, or might not up to code. They also test the various systems in the home, such as electrical, gas, heating and cooling, and sometimes the kitchen appliances. An inspector can go up on the roof, look at the brickwork and determine what type of shingle, siding and tile has been used on the house.

Most contracts allow for an “Inspection Period,” during which Buyers can request repairs or otherwise object to the condition of the house. During this time, the Seller has an opportunity to fix the problems cited by the Buyer.

In many St. Louis home sales, the Buyer provides the Seller with an Inspection Notice during the Inspection Period. The Inspection Notice details what repairs or replacements Buyer wants made prior to closing.

It is very important for the Inspection Notice to be properly drafted and sufficiently detailed to avoid confusion between the Buyer and the Seller and to be enforceable in a court of law, if necessary. For these reasons, Buyers should consider showing their private inspection report to their attorney before finalizing the notice.

At the very least, Buyer will want to show their attorney the language Buyer or their agent wrote, in order to sharpen the language for Buyer’s benefit.

Your attorney will likely have dealt with many inspection situations in the past and is trained to write the notice in a manner that will make it most likely to be enforceable.

If you have questions about your private inspection report or would like to discuss your situation, please contact us at 314.862.2237 or at mjacob@jacob-law.com

There are many people and companies involved in a home purchase. Some of the familiar ones are the:

• Buyer
• Seller
• Lender
• Buyer’s and Seller’s Agents
• Buyer’s and Seller’s Lawyers

Buying a Home Requires a Team

In addition, there are a number of parties that the home buyer may be less familiar with, such as:

• Private home inspector
• Specialized inspectors, for:
  • Termites
  • Radon
  • Lead-based paint
  • Sewer-lateral line
  • Roof
  • Plumbing
  • Electrical
  • Gas-lines
• Municipal or County Inspectors
• Fire District Inspectors
• Appraiser
• Title-company
• Surveyor

Each of these plays a unique role in the home buying process and these lists are not meant to be exhaustive. We find that having trained experts involved in the process minimizes the inherent risks of purchasing real estate

To learn more about types of inspections available, please read this post.Or,  To find out how to find a private home inspector, please see this previous post.

If you are in the home buying process, please contact us at 314-862-2237 or at mjacob@jacob-law.com

Federal law requires Sellers of older homes (those built before 1978) to disclose whether they have any information about the existence of lead-based paint. That is why Buyers are generally given a “Lead Based Paint Disclosure” from the Seller or the Seller’s agent.

Lead-based paint can be dangerous to your family

To learn more about the dangers of lead-based paint, the Environmental Protection Agency has published a pamphlet available here:

Lead based paint can be harmful to young children, infants and fetuses. It can enter your body in multiple ways. Each family should therefore be aware of its danger and should take it seriously. Whether or not you decide to get your own lead-based inspector is up to you and may be very fact specific to your situation.

In our practice, we do not see many Buyers get lead-based inspections, even for homes built prior to 1978. This may be because they are unaware of the existence of lead-based paint, or because they plan to repaint the home. Whether or not repainting protects against lead-based paint should be investigated prior to making the decision on an inspection.

If you have questions about lead-based inspections, please contact us at 314.862.2237 or at mjacob@jacob-law.com

For Buyers who need financing to purchase a home,  the home purchase contract may give them some time to get a “Loan Commitment” or “Loan Approval.”  The Buyer must get either of these before the Loan Contingency Deadline.

In addition to these terms, there are other terms that often get thrown into the mix, and that are helpful to understand. There is some variation across lenders, and the definitions below may not fit all lenders.

Pre-qualification means that the lender evaluated the potential borrower’s financial picture based only on information the borrower provided, and indicated the mortgage amount for which the borrower could possibly qualify. The lender has not reviewed the potential borrower’s credit, or any other supporting documentation.

Pre-approval is a different term and is somewhat more involved. To get pre-approval, the lender verified the potential borrower’s financial background, checked their credit, and reviewed the mortgage application and other supporting documentation. If pre-approved, the lender can provide the potential interest rate that the borrower would qualify for and may also allow them to pre-lock a rate.

 Although a borrower may get a “Pre-qualification” or a “Pre-approval,” it is the Loan Approval or Commitment that are really the important benchmarks when it comes to the loan contingency deadline.

A borrower will therefore want to discuss with their lender what is required to get documentation that assures that the lender will provide financing.

A lender may not want to discuss appraisals or final underwriting until it gets closer to closing. This can be an area of contention between the borrower and the lender. If the lender has not finished underwriting, but has issued the approval or commitment, the borrower may be on the hook to purchase the house even when the bank is not yet fully committed to funding.

For this reason, we suggest that borrowers discuss the issue with an attorney if their lender is not willing or able to give them a satisfactory commitment or approval.

If you have questions about obtain a loan commitment or approval, please contact us at mjacob@jacob-law.com or at 314.862.2237

Many home purchase contracts today will give the Buyer a certain amount of time to get a “Loan Commitment” or “Loan Approval,” if the Buyer seeks financing to purchase a home. The Buyer must get either the Loan Commitment or Approval by the Loan Contingency Deadline.

What is needed from the lender before the loan contingency deadline?

The terms “Loan Commitment” and “Loan Approval,” are often used to mean the same thing in some standard real estate contracts and even in a number of court cases. One could argue that a loan commitment is stronger than a loan approval, or vice versa, but we have not yet seen any clear distinction in Missouri.

Although the lender may offer you a “Pre-qualification” or a “Pre-approval,” the Loan Approval or Commitment are really the important benchmarks when it comes to the loan contingency deadline.

A borrower will therefore want to discuss with their lender what is required of them to get a document from the lender that assures them the lender will provide financing.

Often lenders do not want to discuss appraisals and final underwriting until it gets closer to closing. This can be an area of contention between the borrower and the lender. If the lender has not finished underwriting, but has issued the approval or commitment, the borrower may be on the hook to purchase the house even when the bank is not yet fully committed to funding.

For more information on what happens if the lender does not commit to funding, read this.

For this reason, we suggest that borrowers discuss the issue with an attorney if their lender is not willing or able to give them a satisfactory commitment or approval, or if they want some help navigating this process.

If you have questions about obtain a loan commitment or approval, please contact us at mjacob@jacob-law.com or at 314.862.2237

Yes you are allowed to add an addendum to a “Standard” Real Estate Contract. We often help clients add one addendum or more.

Associations that generate standard forms generally have standard addenda to accompany those forms. Sometimes you can use those. In other cases, when either there is no access to such standard addenda, or there is none that fits your situation or purpose, your attorney can put together custom addenda to present to both sides for signature.

Drafting a Contract Addendum

Buyers and Sellers should recognize that the protections offered in standard form contracts and addenda might not match up with the protections they would want in the deal. See our post on standard form contracts here.

Banks, relocation companies, institutional housing investors and other parties connected to a deal all have their own standard addenda that they may require to be attached and incorporated into any residential sale they are apart of.

Both Buyer and Seller should be aware that the right to attach such modifications to the contract is not exclusive to big parties, such as lenders and title companies. Buyers and Sellers also have this right and should feel free to exercise it upon the advice of their attorney, as appropriate to the circumstances of the deal.

If you have questions about addenda, or would like us to draft one for you, please contact us at 314.862.2237 or at mjacob@jacob-law.com

Anytime you are preparing to enter into a major financial transaction, it is wise to review the underlying contracts and other documents. In a home closing, those documents might include:

Documents to review prior to closing

• The Sales Contract,
• Amendments to the Contract,
• Inspection Notice,
• Final Walk-through Notice, and
• Any other documents that require either of the parties to provide something at or prior to closing, such as additional funds, certificates or other documentation.

In our experience, some of the things that often get overlooked are:

• Whether Seller is required to provide a home warranty;
• Whether Seller is required to provide lien waivers, due to repairs at Buyer’s request;
• Whether Seller is required to provide a passing gas inspection;
• Whether Seller is required to provide a passing local government or fire district inspection;
• Whether Buyer or Seller needs to provide a Certificate of Trust, if they are acting in a Trustee capacity.

If you have an attorney, he or she will likely review these documents prior to closing. In addition, both you and your attorney should review the HUD-1 Closing statement and other closing documents provided by the title company and lender. Read this post for more information on closing documents.

Properly preparing for closing in our experience leads to a much smoother closing of the transaction.

If you have questions about your documents, please contact us at 314.862.2237 or at mjacob@jacob-law.com

A “standard form contract” is really just a contract like any other. It is drafted for the benefit of the client who hired the lawyer to draft the contract. Buyers and Sellers should therefore be very concerned that the terms in the contract were not written for their benefit.

Who was the contract written for?

For example, most of standard form residential contracts we see are drafted for a local, private, association of real estate brokers and agents. The lawyer(s) who drafted those contracts did so on behalf of that association to help its members facilitate home sales in the most efficient manner possible. The drafting lawyers may not have been not very interested in giving the Buyer (or Seller) the protections that Buyer (or Seller) would want to have in a fully negotiated agreement.

This leaves Buyers and Sellers in danger. They often think they are protected because a contract is called “standard” and many people use it. But without modifications to that contract based on the specifics of their deal, the protections Buyers and Sellers want are probably not in that “standard” contract.

If you would like our office to review your contract or draft a custom one, please contact us at 314.862.2237 or email at mjacob@jacob-law.com