Alerts

Commercial Real Estate Closings in the COVID-19 Climate: Practical Considerations

Alerts / April 2, 2020

States and local municipalities throughout the nation have recently instituted, by means of emergency orders and similar actions (collectively, SIP Orders), shelter-in-place obligations aimed at limiting the spread of the novel coronavirus disease (COVID-19). These constantly evolving SIP Orders, while imperative to the health and safety of our communities, have caused unique complications for parties preparing to close real estate transactions. As such, it is important for all involved parties to anticipate the obstacles that may arise and employ all available resources to ensure a smooth and timely path to closing.

For transactions in the early stages of a deal’s life cycle (i.e., during the contract negotiation phase), parties should think carefully about incorporating provisions in their contracts that will protect their interests in light of the COVID-19 pandemic. With this in mind, it is important for parties to think through the inclusion of force majeure provisions, fixed/floating closing dates, “time is of the essence” clauses and closing conditions that are specifically tailored to address uncertainties in the current climate and to anticipate changes that may arise in the coming weeks and months.

While drafting considerations are of paramount importance during this time, this article addresses key considerations for parties approaching closing. With SIP Orders complicating traditional signing practices and recordation methods, the framework below sets forth practical considerations for closings, including (i) execution and notarization of closing documents, (ii) recordation of closing documents, and (iii) issuance of title insurance policies.

  1. Execution and Notarization of Closing Documents
    • Determine Signatory and Notary Availability in Advance. Determine the authorized signatory for each entity signing closing documents, including a backup signatory if feasible. When possible, provide for multiple authorized signatories in your corporate resolutions authorizing closing. Confirm availability, contact information and actual location information for the signatory well in advance of the closing date. Do not assume that authorized signatories have access to in-person notarial services. Assist in providing these services or identifying options for notarization of documents. Attorneys who are notaries should keep a notarial stamp at their remote work location and should be prepared to arrange for access to their office building or another location (keeping in mind proper social distancing guidelines and building access limitations that may be imposed by building managers) in the event notary services are required. Other local options for in-person notary services include local UPS stores and banks as many of these businesses remain open and offer limited notarial services during the COVID-19 pandemic.
    • Prepare Execution Packets and Arrange for Timely Delivery. Prepare an execution package with breakaway signature pages to be delivered to, and signed by, each authorized signatory well in advance of closing, and then returned to the attorney or sent to the title company and/or escrow agent. Including an envelope with a pre-paid return label can remove complications and facilitate timely delivery for signatories operating in a remote work location. Attorneys should send detailed execution instructions and escrow closing letters to the parties well in advance of the closing date. Also keep in mind that escrow closing/settlement agents may be working remotely, so it is important to verify the exact address where executed closing documents should be delivered. Finally, due to current business closures as well as backlogs and delays in overnight delivery service, consider delivering executed documents and coordinating wire transfers into escrow one or more days in advance of closing to ensure timely delivery.
    • Consider Electronic Signatures. For those working remotely with limited access to printers and scanners, executing documents using an electronic signature (as opposed to a “wet” signature) may be a good option. The validity requirements and acceptance of electronic signatures will depend on compliance with state and/or federal law, agreement between the parties, and approval by the title company and local recording office, if applicable. Note that every state across the country either is subject to the United States Electronic Signatures in Global and National Commerce (ESIGN) Act or has adopted a standard form of the Uniform Electronic Transaction Act (UETA). Among other things, these acts provide for legal enforceability of electronic signatures and mandate that electronic signatures should not be denied validity because of their electronic form.
    • Consider Remote Online Notarization (RON). If documents need to be notarized and in-person notarization is not feasible, consider consulting with (i) your attorney to determine whether RON services are available in your state and, if so, the required procedure for properly effectuating such services, and (ii) the title company to confirm whether online notarization is acceptable for recording in the subject jurisdiction. Currently, almost half of all U.S. states have adopted RON statutes which allow for notarization via video-conferencing technology. This number continues to grow on a daily basis as more states adopt RON legislation, and, in response to the COVID-19 pandemic, states are adopting temporary orders to allow notarization by audio-video conference (including the state of Georgia, which authorized RON for the first time by an executive order on March 31). Click here to see a Westlaw Practical Law article listing all states that permit RON as of April 1. Also noteworthy, title companies in certain jurisdictions that have historically refused to accept RON have relaxed their underwriting criteria to accommodate these options in the current climate.
  2. Recordation of Closing Documents
    • Consider E-recording Documents. Electronic recording can be an excellent way to avoid closing complications arising from county recording office closures. Many recording offices across the country offer E-recording of real estate documents. Click here to view an updated list of all counties that currently accept E-recording. If E-recording is not an option in the relevant jurisdiction, consider calling recording offices, reviewing the recording office website or reaching out to title company representatives to determine whether the applicable recording office is open and accepting documents for recording traditionally or via E-recording. Click here to view an updated list of recording office closures provided by First American Title Insurance as of March 31.
    • Retrieve Recorded Documents Online or Over the Phone. Many jurisdictions provide online databases to access recorded documents and investigate the status of documents sent out for recording. While some databases require a subscription and a subscription fee, click here to find the electronic database for each applicable county. When records are not available electronically, parties generally are required to visit recording offices to investigate recorded documents, as recording clerks generally refuse to investigate physical property record requests over the phone. However, amid the COVID-19 crisis, recording offices and clerks appear to be increasingly amenable to providing information regarding recorded documents over the phone and, in some cases, even scanning and emailing physical copies to requesting parties.
  3. Issuance of Title Policies
    • Extended Gap Closings in the Event of Recording Office Closures. Keep in mind, even if a recording office accepts E-recording, the recording office may not be processing recorded documents for final recordation in the applicable property records in a timely manner. If the recording office is closed, is not accepting documents for recording, or is accepting E-recording but is not processing recorded documents, a title company may be unwilling to issue a title policy due to a prolonged “gap period” during the COVID-19 crisis. Closing over a gap period is a common practice whereby the title company agrees to insure title from the date of closing through the date of recordation of the deed or security instrument in exchange for a gap indemnity affidavit from the seller or borrower. When recording offices are operating as usual, this gap period is typically only a few days. However, in the current COVID-19 climate, it remains unclear when certain offices will be accepting recordings, so gap periods are being extended indefinitely. With this said, remember to inquire with your title company as to whether it is amenable to issuing the policy without taking exception for the gap period in exchange for an Affidavit for Delayed Recording, or similar instrument addressing an indefinite gap period. Several major title companies have already promulgated forms to address this situation to be executed by the seller and/or buyer/borrower, as applicable. While the terms will vary based on the particular title company and the circumstances in that jurisdiction, this may allow the title insurance company to issue the policy and insure a gap period of unknown length due to the COVID-19 crisis.

While real estate closings often present unexpected obstacles, the uncertainty and challenges posed by the current COVID-19 crisis, including the inability to do previously routine tasks, will require advance planning and foresight. Communication, coordination and the ability to take advantage of available resources in creative ways are key to a successful closing. BakerHostetler continues to stay apprised of the latest developments and is ready to assist you at any and all stages of your real estate transactions.

Authorship Credit: Wendy W. Markham, Nolan T. McKeever and Rahil Rather

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