Getting the Parties Right in Commercial Real Estate Deals

Identifying the correct parties in a commercial real estate transaction may seem straightforward, but missteps at this stage can create real legal and commercial risk. From uncertainty over who the actual contracting party is to concerns about enforceability and creditworthiness, getting the parties right early can materially affect deal outcomes.

Here are five key points to keep in mind when negotiating real estate purchase and sale agreements.

1. Know who you are dealing with. Always confirm whether the counterparty is a legal entity capable of entering into contracts and holding title. Not all entities can do both, and incorrect party identification can undermine enforceability. 
2. Be cautious with “or its assignee.” Adding these words to the description of the purchaser may seem harmless, but it creates uncertainty about who the vendor is contracting with. Assignment rights should be addressed in a clearly drafted assignment clause, not in the party description.
3. Confirm ownership of the property. The vendor named in the agreement is not always the registered or beneficial owner. Where a nominee or bare trustee is involved, additional authority, representations or deliverables may be required to ensure the vendor can validly convey title.
4. Assess the strength of the counterparty’s covenant. A single-purpose entity may own nothing other than the property being sold and may have no meaningful assets after closing. If significant representations or post-closing obligations matter, consider whether additional protection, such as a parent guarantee or holdback, is warranted.
5. Think early about assignment. Assignment clauses affect who the contracting party may ultimately become, which can raise Know Your Client (KYC), anti-money laundering and reputational concerns. There is no one-size-fits-all approach. Vendors often seek certainty at the outset, while purchasers may need flexibility to assign to affiliates or investors.

The bottom line is that party identification is not merely legal housekeeping. It is a business risk issue, and addressing these questions early — ideally at the letter of intent stage — can help avoid surprises later.

Have more than five minutes? Watch our past seminar on this topic or contact any member of our Commercial Real Estate group.