Top 3 Reps You Need to Avoid When Selling Real Estate

Commercial real estate sellers commonly give a variety of reps and warranties to buyers. The nature and scope of reps vary based on the particular deal. Below, however, are three reps that you need to avoid when selling your real estate:

1. Title to Property.

This representation usually says something like “Seller is the fee title owner of the real estate, free and clear of all liens and encumbrances…”

Refusing to give this rep seems counter-intuitive to most people. After all, if you are the seller, isn’t it an easy representation to give the buyer? Won’t it raise red flags if you can’t even say you own what you are selling?

But as the seller, do you really own it free and clear of all liens? In Michigan, your property taxes are a lien – even though they may not due or payable yet. And do really own the property free and clear of encumbrances? Are you sure there are no mortgages, easements or building and use restrictions?

Given these potential landmines (which you may or may not be aware of), the better option is to order a commitment for a title policy so the buyer can review and rely on that (and later the title policy to be issued at closing) instead of your representation.

2. Environmental.

No one wants to be responsible for someone else’s environmental mess. If a buyer fails to take appropriate steps to identify and document existing contamination, however, he could be liable under state and federal environmental laws. In Michigan, that starts with a phase I environmental site assessment to determine whether more investigations and a baseline environmental assessment are needed.

Even so, a buyer usually tries to get some reps from the seller about environmental conditions on the property. Like title reps, however, a seller may not always know these details and should delete them when negotiating the purchase agreement. You will need to cooperate with the buyer’s environmental investigations. But you are better off making the buyer rely on the results of its investigations, rather than on your representations.

3. Encroachments.

Another representation real estate buyers try to get from a seller concerns encroachments. Encroachments are issues like a building, fence or other improvements intruding from one property onto another. Other examples include encroachments into an easement area, or over a zoning setback line. Like the title and environmental matters above, you should remove this rep from your purchase agreement and make the buyer rely on its due diligence. Some of these issues come down to matters of inches. So, be on the safe side – make the buyer rely on its surveyor or its other physical inspections instead of your representation.

These are the top three reps to avoid when selling real estate.  However, they are not unusual seller representations, and sometimes a buyer may insist the seller give them in some form. However, since the buyer can rely on its title and other investigations on these issues, you should avoid giving them whenever possible.

All information and other content on this site is for informational purposes only. It is not legal advice. You should not rely in any manner upon the information on this site or otherwise construe it as a legal opinion or legal advice. Consult with your lawyer regarding your particular issues and circumstances.

Looking for a freelance legal writer to help with your legal blog or other content? Contact me today!