Penrose Lawyers real estate transactions

Purchase and sale of land and buildings

Practice shows that ‘real estate transactions’ often follow the same pattern, regardless of size, for example, the purchase and sale of land, commercial premises, shops, homes, or an entire portfolio. After the selection, the offer follows, possibly indicative at first. An offer is generally linked to a number of reservations, also known as resolutive conditions, such as a structural survey, a financing reservation, or an approval reservation. The agreement in principle is often laid down in a Letter of Intent (LOI) {LINK https://penrose.interactim.dev/loi-letter-of-intent-ondernemingsrecht/} or a Term Sheet. This is followed by technical, financial, legal, and tax due diligence. The purchase agreement (SPA) is then drawn up and must be assessed. Bank financing and security rights are usually arranged at the same time. After the SPA has been reviewed and signed, the transfer, payment, and establishment of security rights take place at the civil law notary’s office.

Purchase or sale of shares in a company in which real estate is held

Real estate can also be sold and transferred by means of a share transaction. In that case, the shares of the company in which the real estate is held and all other assets and liabilities of the company are sold and transferred by means of a deed of transfer, executed by a civil law notary. Experience shows that this transaction also always follows the same pattern. That pattern is described above. It is important to note that the purchase price for the shares of a real estate company is usually not the same as the market value of the property itself. Any debts are usually settled via the purchase price, as is the deferred corporate income tax on the difference between the market value of the real estate and the book value on the balance sheet. Partly for this reason, it is wise to seek tax advice.

When shares are transferred, all rights and obligations in the company are automatically transferred to the buyer. By purchasing the shares, the buyer takes over the entire company, including all agreements and permits of the company, even those with which he is not familiar. It is therefore important to conduct a thorough investigation in advance, known as due diligence.

Purchase or sale of assets and liabilities of a company in which real estate is held

Real estate can also be transferred by means of a so-called asset-liability transaction. In an asset-liability transaction, individual parts of a company are sold, such as real estate, stocks, inventory, installations, permits, and intellectual property rights. This allows the buyer to know exactly what they are buying. This approach makes it possible to acquire only interesting or less risky parts of the company. A disadvantage is that each part must be transferred separately in accordance with the applicable rules. In addition, it must be taken into account that the cooperation of contracting parties is required for contract transfers — in the case of lease agreements for retail space, this may be enforceable by means of subrogation — and that permits or IP rights may not be transferable or may only be transferable to a limited extent.

Experience shows that this transaction also follows the same pattern. This is comparable to the pattern for brick-and-mortar or share transactions involving real estate.

Purchase or sale of real estate developments

Real estate that has yet to be built or even developed can also be transferred. This involves the purchase and sale of (project) developments. Often, there is nothing else to transfer other than the land and the contracts required to develop the land. The latter includes development agreements, purchase/realization agreements, construction contracts, cooperation agreements, anterior agreements, and/or lease agreements. There are various ways to transfer real estate that is still to be developed, for example by means of a forward purchase or forward funding.

Forward purchase

In a forward purchase, the parties agree that the purchase agreement— for shares in a (real estate) company or for the real estate itself — will be concluded under the (suspensive) condition that the construction of the real estate is complete. Normally, this is the moment of provisional delivery. The transfer of the real estate only takes place then. As a result, the buyer does not bear any construction risk or risk if the seller/developer goes bankrupt. This often facilitates the financing of the purchase of the real estate.

Forward funding

In the case of forward funding, the purchase agreement – for shares in a (real estate) company or for the property itself – is concluded without the (suspensive) condition that the construction of the property is completed. Often, for example, there is a condition for obtaining final irrevocable permits. The transfer of ownership takes place before the construction of the property is completed. The purchase price is paid in installments during construction.

This means that the buyer bears more risk than a buyer in a forward purchase, particularly in the event of default or insolvency on the part of the seller/developer. On the other hand, the buyer is involved at an early stage and can influence the development itself and the underlying agreements.