The US and the UK are often described as two countries separated by a common language. But how different are they when it comes to buying a trophy building?
It makes sense to draw this comparison between the countries’ trophy cities: New York and London.
The key difference is the role that title insurance plays in the US with respect to ownership/title matters.
The lawyer instructed in New York would engage a title company to search the records and provide a title report that lists the owner and all matters benefiting or burdening the property or other restrictions on its use. The lawyer would review what was disclosed in the title report and ultimately a title policy would be obtained.
In London, one of the first jobs for the lawyer instructed would be to check the title. The lawyer would also undertake a series of searches of independent bodies, whereas in the US these form part of the report provided by the title company.
In the US, a seller will give very few representations and warranties in relation to the property. In the UK, the sale documentation will also contain few, if any, representations and warranties. However, there is a well-established procedure under which a seller replies to a set list of enquires – known as the Commercial Property Standard Enquiries – on which a buyer is entitled to rely. If a seller gives incorrect replies, either deliberately or negligently, the seller could be liable for damages.
In London, the lawyer will review the leases and report on them to the buyer but, other than in very unusual cases, there will be no need to contact the tenant. Often the first that a tenant knows about a sale is when it receives notice after the sale has been completed to tell it that it has a new landlord.
In the US, however, to address potential issues under the leases – for example, confirming that there are no defaults and that there are no hidden rights or obligations benefiting a tenant – many transactions are contingent on obtaining “clean” estoppels from a certain number of tenants at the property. An estoppel is basically a certificate that confirms information about the lease and it must confirm that there are no issues. Occasionally it is agreed that the seller can provide the estoppel as a closing condition.
In the US, it is not unusual for a property to be sold with its existing debt. Sometimes the existing debt will be assumed by the buyer and a mini transaction is undertaken with the existing lender to obtain consent and amend or modify the loan documentation.
In New York, there is a significant mortgage tax saving that can be accomplished by having the existing debt assigned to the new lender and then assumed by the buyer and immediately restated on the terms that the new lender and buyer agree to. It is important to build this right into loan documents, and often sellers will want to share the mortgage tax savings to co-operate.
During the recovery period following the global financial crisis, in the UK some banks were prepared to help facilitate a sale by a borrower by indicating that they would be prepared to provide a debt facility to a buyer, but sales with debt attached are very rare in London.
Finally, in the UK a buyer would normally expect to have completed all its due diligence before signing binding agreements to purchase. In the US, however, agreements are often signed subject to the due diligence process, with a right for the buyer to walk away after 30 days. This gives the buyer peace of mind that it has a deal and is therefore willing to spend the resources to perform its due diligence.
Oscar Wilde once suggested: “We have really everything in common with America nowadays, except, of course, language.” It is clear that he was not a lawyer.
Jackie Newstead is global head of real estate, Hogan Lovells International in London and Lee Samuelson is partner, Hogan Lovells US in New York
