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Written by Bruce I. Wiener, Managing Partner of Akerman LLP’s Tallahassee, Florida Office
Thoughts of a sale or succession planning may be top of mind or beginning to percolate for some death-care professionals. At the same time, allocating time for these matters and tending to real estate housekeeping tasks can be challenging as your days are filled with serving families and your communities. These tasks can pile up over time, making the outlook on completing them formidable. So, if a sale is on the agenda, time should be set aside to fully assess your real estate assets to structure and plan for a potential transaction ahead. Once a purchase and sale agreement has been entered into, the transaction can move very quickly. But the transaction can fail just as quickly if issues arise during the due diligence process and the buyer is not willing to stand by for a resolution. To ease the burden and focus your planning, we have compiled below some thoughts and suggestions to enhance the marketability of your real estate and to facilitate an efficient transaction.
Over the years, we have represented parties in the sale of funeral homes, crematories, and cemeteries. These transactions have been varied and have included situations in which the seller owned their real estate assets and situations where the properties are leased by the operator. In this Real Estate Corner, we touch on issues you should consider and plan for if you think now is the time for a transition or sale.
Property Owners
The typical purchase and sale agreement contains a provision on title and survey matters. These provisions give the buyer the opportunity to evaluate title information pertaining to the subject property and to obtain a survey of the subject property. The title information is typically provided by a title company, which issues what is generally referred to in the real estate industry as a title commitment. A survey is usually ordered separately from the title commitment, but the surveyor will often rely in part on the title commitment when preparing the survey. The title commitment will identify specific requirements that must be satisfied in order for the transaction to close and for a title insurance policy to be issued to the buyer. Such requirements may include obtaining a corrective deed to cure a prior title conveyance issue, securing a satisfaction of mortgage that has not been previously recorded in the public records, securing the release of a prior UCC-1 fixture filing, completing certain steps in a prior probate proceeding involving the subject property, or obtaining a release or satisfaction from a local government entity with respect to a prior or pending code enforcement matter. A new survey may identify encroachments or boundary overlaps, which are discussed further below. Once you are under contract and surprises emerge, you may face short time frames to resolve issues raised by a buyer. A proactive approach to getting ahead of this is to review title and survey matters in advance of a potential sale to make sure the title and survey portion of your sale proceeds smoothly.
If you own your real estate assets, begin by pulling the transaction files from your acquisition of the real estate and reviewing what information you have on hand. In particular, find your prior owner’s title insurance policies and surveys. (If you do not have this information, contact the attorney who represented you in the purchase of your property or the title companies that closed your acquisitions and try to get this information from them.) Your buyer will likely ask for this information, which is a crucial element in simplifying the title component of your transaction. You will be expected to reasonably cooperate in assisting your buyer in obtaining a title insurance policy that suits their needs in the continuation of the business. Having your prior owner’s title insurance policy handy can simplify the process of ordering title and can help alleviate potential title problems, which can otherwise cause a headache for both buyer and seller.
In evaluating your real estate holdings, consider whether you would you like to retain any of the real estate associated with or adjoining the business properties. If you would, and the property you intend to keep, such as a residence or vacant land, adjoins your funeral home property, consider whether any easements will be needed to service either property once title changes hands. For instance, an easement may be needed to provide access to a public roadway, parking spaces, or entry for certain maintenance. As an example, the latter type of easement would allow the owner of a building on a property boundary to enter the adjoining neighbor’s property to maintain, repair, and replace the particular building or related improvement. Consider also whether the parcel you wish to keep is a separate legal parcel of record with its own parcel identification number. If not, we suggest consulting a real estate attorney to determine if the situation requires compliance with local partition or subdivision regulations.
Similarly, you should evaluate whether your real estate has any boundary encroachments. For instance, do any buildings, sheds, or fences located on your property encroach on the neighbor’s property, or vice versa? Also, do any of your parking spaces or access points extend beyond the boundary of your property? If this might be the case, evaluate whether you will need an easement to maintain your property and to continue the historical use of your property.
Outstanding permits and pending code violations are also important to review. For instance, is the permit for a recent roof repair fully closed? If not, reach out to the contractor that pulled the permit and require that it be closed. And, if a code board matter is pending, work to resolve the issue in advance of marketing your real estate assets. Local government code violations can be problematic and time consuming, especially when resolving the matter requires a public hearing. Your buyer may not be willing to wait for such a resolution. To avoid the loss of a buyer, you should make every effort to resolve these types of issues before entering into a purchase and sale agreement.
Another item a buyer often evaluates is the zoning of the funeral home and cemetery property. Is the particular use – for instance, property used as a funeral home, crematory or cemetery – a permitted use under the applicable zoning laws and regulations? Are any uses nonconforming to local zoning codes and ordinances? In particular, for a crematory, you should ensure any required permits are in place and current. These, and previously mentioned matters, are factors of particular concern to prospective buyers, and can delay, or possibly derail, closing.
Relatedly, you should review your title documents for any applicable covenants or other restrictions that have been imposed on the property. These documents are private agreements that can act similarly to zoning regulations in that they can limit the permitted uses of your property. You will want to familiarize yourself with any private restrictions that may limit the types of death-care services that can be provided on the property.
Leasehold Interests – Tenants
Some death-care professionals operate their businesses in premises that are leased rather than owned. If this is your situation, you should check the terms of your lease(s) in preparation for a potential sale of your business. Of particular importance are sections pertaining to the description of the leased premises, assignment of the lease, the term period or length of the lease, renewal options, options to purchase, rent schedules (including annual increases and formulas for calculating the rent for renewal periods), additional rent (such as for common area maintenance, taxes, and utilities), and permitted use.
Make sure the leased premises are accurately described and depicted in the body of the lease or as an attachment. Consider whether you will need to obtain your landlord’s consent to assignment of the lease and whether your landlord will be amenable to such an assignment. Additionally, look into whether your lease requires you to remain liable under the terms of the lease following an assignment. With respect to the term period, ask yourself whether the length of time remaining in the term, including available renewal options, would be appealing or marketable to a buyer of the business. Finally, determine whether the lease has a broad permitted use section, allowing for almost any type of activity involving death-care services, or whether the permitted use is more limited, perhaps only allowing for sales and office uses, but not allowing for uses associated with viewings and celebrations of life.
Additionally, consider our comments on zoning in the section above. Many of the concerns raised in that section apply to lessors as well as they may impact code compliance and the ability to obtain certain local, state, and federal licenses.
Cemeteries, In Particular
If you are considering the sale of a cemetery, review your surveys and burial records, particularly making sure the latter are up to date. If you need a current survey, seek out a surveyor experienced in surveying cemetery properties. They are out there. Consult an attorney on applicable laws, rules and regulations in your state relating to the sale, leasing and mortgaging of cemetery lands, including the need to obtain approvals from the governing licensing authority as to these matters. If approvals are needed, understand the process and timing. Timing can significantly impact when you can close either a sale or loan transaction. Of note, Florida and other states place certain restrictions on mortgaging licensed cemetery land. As such, lenders financing a purchase of a cemetery will need to know this early as it will factor into their underwriting process. In brief, the lender may need to seek other forms of collateral to secure a buyer’s purchase loan. If you plan to retain any of the cemetery property as vacant land unencumbered by a cemetery designation, check with an experienced attorney in your community on the process to achieve this. Again, try to work on this before you market your cemetery property to avoid unnecessary delays during the transaction.
The above outlines a handful of real estate issues to consider before embarking on the sale of your funeral home property or cemetery, or before assigning a lease of the premises where your business is conducted. We have raised these issues with a simple objective in mind – to enhance the marketability of your assets and to make the real estate aspects of the sale as seamless as possible. One thing is for sure, everyone loves a smooth closing.
Bruce Wiener is the managing partner of Akerman LLP’s Tallahassee, Florida, office and is board certified in real estate Law by the Florida Bar. He brings three decades of experience in real estate law, commercial lending, and land use and leads a team of skilled attorneys and professionals in navigating complex real estate transactions from contract to closing. His experience covers a diverse set of real estate asset classes, including real estate transactions involving the funeral and cemetery service industry.
Keeley Smith is a second-year associate practicing real estate law in Akerman’s Tallahassee office. She focuses her practice on commercial real estate transactions, including acquisitions, dispositions, and leasing, as well as a variety of regulatory matters. Her real estate practice includes title review, land use work, leasing, and performing other due diligence investigations involving commercial real estate.