No Certificate of Occupancy

Commercial Real Estate Investing
7yFollow

No Certificate of Occupancy

Account Closed
Los Angeles, CA · Member since 2017 · 73 posts · 56 votes

Currently trying to close a deal on a fitness center that's still being developed here in California. 

Seller can guarantee the Certificate of Occupancy upon close of the escrow but when I requested that we include the Certificate of Occupancy as part of the materials provided in the Buyer's Contingencies to be reviewed prior to closing escrow (along with the lease, environmental reports, etc.), the agent said the seller will not accept this.

I'm confused as to why the seller wouldn't agree to this. If the seller can "guarantee" the Certificate of Occupancy, why wouldn't they be okay to include it with the other materials they're providing as part of the Buyer's Contingency? Why are they eager to close before providing a Certificate of Occupancy?

**This is a large developer and the tenant is a national fitness chain.

0Reply
28 views

Most Popular Reply

Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y

That sounds shady. Just because it's a "large developer" and "national fitness chain" doesn't mean they are doing everything above board.

The DIY Landlord Book4.7248 Reviews
WebsiteView Page
1Reply
See this reply in the discussion

6 Replies

Jump to latestLatest
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    That sounds shady. Just because it's a "large developer" and "national fitness chain" doesn't mean they are doing everything above board.

    The DIY Landlord Book4.7248 Reviews
    WebsiteView Page
    1Reply
  • Account Closed
    OP
    Los Angeles, CA · Member since 2017 · 73 posts · 56 votes
    7y

    Thanks Nathan. I figured if they're an established developer working with a national fitness chain, everything would be done above board as you say, but I guess there's always the possibility of that not being the case. 

    0Reply
  • Zach Quick
    Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
    7y

    @Joel Owens Can you chime in on this? I'm sure you've ran into this a few times before.

    1Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    7y

    When is the fitness center slated to open per the lease? There are also construction timelines, TI credits, leasing commissions, etc. There is a punch list the developer is obligated to meet based on the tenant so even post opening the tenant has a clearance letter they sign off on.

    If you are getting a loan with some down the lender will also have their own requirements that must be met or they won't do a loan.

    The lease could have language also that even if NNN the first year of property taxes are capped. So you have to get developer to be responsible post closing for the difference. We usually hold a reserve from sellers proceeds post closing so if any shortfall the developer covers. There are also provisions sometimes where it's absolute NNN but not until warranties and certificates have been delivered to the tenant. Until that time landlord is responsible for everything.

    Hopefully you have a great commercial retail attorney working on this. Some developers just have a land or basic survey and the lender requires an ALTA level one survey. Just because a big developer means nothing. Individual, small, or large developer I still put them through my checks and balances. If they want a buyer to look the other way on a bunch of items and not ask questions that is a NO GO from me. 

    Podcast Guest on Show #47
    NNN Invest53 Reviews
    WebsiteView Page
    1Reply
  • Account Closed
    OP
    Los Angeles, CA · Member since 2017 · 73 posts · 56 votes
    7y

    Thanks for the info Joel! 

    It's slated to open in January. Due diligence takes us past completion date so either way it would be done before close of escrow.

    We do have the developer responsible for a handful of things post closing (rent/CAM abatement for example) as well as an attorney looking through things. I was just curious about this one issue. We did manage to get the Certificate of Occupancy as an item under Buyer's Contingencies today so that is good, we're not okay with just signing anything without asking questions and getting them to agree to our terms.

    0Reply
  • Stanley Bronstein
    Attorney, CPA, Broker & Author · Scottsdale, AZ · Member since 2018 · 532 posts · 488 votes
    7y

    @Account Closed You are being smart on this. You need the Certificate of Occupancy and if you have a lender on the project, they're going to want to see it as well.

    I'm glad you were able to get them to add it to the list of Buyer's Contingencies.

    In a case like this, remember - You're the one with the money ... Make them do things property BEFORE they get your money ...

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free