SALE OF BUSINESS INCLUDING BUILDING/LAND – Financing the Real Estate

Many Owners will be selling their businesses in this next year.   Many of these owners will need to finance these transactions because they did not plan for the Sale of their Business, and a Bank will not provide full financing for the sale.   This will mean they will hold the loan on the business and its real property.  Many people try to do the sale without an an attorney, and this can cause the owner to get less than deserved, not review all opportunities that will allow the buyer to finance, and may have the Owner setting up the financing through a Land Installment Agreement or Land Contract.  

What do  you need to know in this case? 

• Have you reviewed your transaction as it involves the real estate and made sure that the buyer could not obtain financing on the property?   I recommend that you have a Qualified Appraiser Appraise the Property.   This is in regard to Commercial and Residential.  Most people believe that they really know the true value of the property. Recently in an estate, where there were multiple owners, a qualified real estate agent provided a value which was lower than the Auditor’s Card, and as such I reviewed this with the client and advised they have a Qualified Appraiser do the Appraisal.   The Appraiser with many years of experience appraised this same property significantly higher than the Auditor’s card.   Beginning strong and leaving much room to negotiate helps you sell the property for its best value.   You need to review the pros and cons of the asset. 

In another case, where there was a Business with a Building in the Estate that was being litigated, they agreed to the Auditor’s card for settlement.   This was a windfall to the party that received the property.  As their business attorney, I wanted to establish the stepped up tax basis to the new owner, and to review options regarding refinancing the debt and restructuring the entity and the debt and determining the tax effects to the new owner.   In both cases, and I would say every case reviewing the Tax Basis and options, I would recommend that a Qualified Appraiser be brought in.  There are various degrees of the level of Appraisal by the professional and review of what evidence will be needed to protect the parties will need to be considered. 

• Are there any liens on the property, and what will you, as the Owner Selling need to payoff to provide the New Owner with the property?    In representing the business Owner  Selling, I am looking at how to structure this transaction to best protect my client and help the buyer to obtain financing through a third party.    This approach allows the Owner Selling to have the least likely chance of not getting paid in full. 
• Owner Financing.   Again, I would want the New Buyer to get financing on the real estate but what if the Seller has found the best qualified Buyer and  they are both discussing Land Contract.   What am I looking for in this transaction? I am looking to get the Seller through this in the best and quickest way possible.   If the Seller is holding real estate and financing the transaction in this way, they have more security if the Buyer fails.   Still this is a liability in that.