Elements of a Smooth Closing
3 Key Elements Required to Create a Smooth Closing: Preparation, Communication & Flexibility
Over the years, as lender's counsel, I have had many "surprises" at closings.
While they are sometimes entertaining, surprises and the stress they cause for all parties are best avoided by preparing, communicating and being flexible to resolve important issues prior to closing.
Some of these “surprises” have included the time when, right before closing, the business being sold was covered up to its roof by a 100-year flood. Another involved the seller’s counsel driving the deed to a Federal penitentiary for the seller to sign.
A third incident was the discovery on the premises of a ‘Superfund’ hazardous waste site that the seller "forgot" to tell us about. Plus, there is always the decades-old improperly discharged tax lien.
Preparation, communication and flexibility couldn’t have stopped the flood or the need for the penitentiary visit, but the other surprises are the types that can be sudden, needlessly expensive, and can ultimately threaten the sale.
Sellers and buyers need to understand what happens at a closing and be committed to getting ready for it.
Everyone wants to get it done! Most of the time, the closing represents the end of a long and tiring negotiation, and people just want to get the deal closed.
Sellers, however, also want to maximize their proceeds and minimize taxes. Buyers also want to get what they bargained for, and protect themselves from liabilities.
Lenders want to obtain the collateral they need and make sure the documentation is correct.
Finally, each party at the closing wants to minimize their closing costs, which increase when the parties are not prepared, are not talking, or will not compromise.
Attorneys for each party have traditional roles.
The lender’s counsel usually organizes the closing and informs the parties of their respective responsibilities. Often, seller’s counsel creates the Closing Agenda, which shows the loan structure, what is needed for collateral, and what is needed to clear title to the assets being sold.
The lender’s counsel reviews documents submitted by both seller and buyer and usually prepares the settlement statement before closing, showing the allocation and distribution of funds.
Seller’s counsel usually prepares the asset transfer documents – the Deeds and Bills of Sale. He obtains the documentation for clear title and business entity documents of organization, good standing and consent.
Buyer’s counsel usually focuses on preparation of the documents required by the lender, such as title and UCC searches. He also reviews the loan and sale documents for protection of the buyer. It is important that 3rd party consents from landlords or tenants be obtained early on.
Seller financing documents, non-competition and consulting agreements, and other items can be prepared by either party. The purchase and sale agreement may spell out which party is responsible.
Closing Ends and Beginnings
The closing is an end and a beginning. It is an end of the sales process, the document preparation, the title investigation and the resolution of all the issues between the parties up to that point. It is, however, also a beginning – of a new business ownership, a new lender/buyer relationship, and also of new long-term acquaintances (buyer, seller, broker, lender’s lawyer, buyer’s lawyer and seller’s lawyer).
I have had the pleasure of working on three well-organized closings with Maine Business Brokers on the sale of Images Housing in Barrington, New Hampshire, Millwork Specialties in Waterboro, Maine, and of Maine Lobster Direct in Portland, Maine. In each case, they did a superior job of working as part of a team to keep the deal moving with me, as lender’s counsel, and also with the lawyers for the buyers and sellers.
A smooth closing is the result of all parties working hard to create a cooperative atmosphere. They respect the need to reach an agreement in advance. They are prepared. They talk with each other and when the going gets tough, they compromise to accomplish the greater goals they have in common.
About the Author: Alexandra E. “Alix” Caulfield is a graduate of the University of Massachusetts (B.A., cum laude, 1979) and the University of Maine (J.D., 1991). She is a partner at Drummond and Drummond, L.L.P., Attorneys at Law, in Portland, Maine. She has extensive experience in real estate and corporate law and in closing commercial transactions. She can be reached at: 207-774-0317 x116, or at her email, firstname.lastname@example.org.
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