Professional Documents
Culture Documents
Thepremierhospitalitypracticeinafullservicelawfirm
Buyingahotelisusuallyacomplexprocesswithalotofmovingparts.Justkeepingtrackofall
thekeypeopleinvolvedcanbechallenginginafastmovingdeal.Andbecauseahotelinvolves
both special purpose real estate and an operating business, there are many details requiring
attentiontosuccessfullyevaluateandtransferthehotel.
Thats why the hotel lawyers in JMBM's Global Hospitality Group usually start every hotel
acquisitionorhotelinvestmenttransactionbycustomizingagenericformofchecklisttofitthe
specifictransactionathand.Weuseagenericformofchecklist,suchastheaccompanyingone,
as a starting point in preparing a customized checklist for each unique transaction. The
customized checklist helps us manage the acquisition or investment process, keep all the
participantscoordinated,andpressforwardtomeeturgentmilestonesanddeadlines.
We created the accompanying generic checklist based upon our extensive experience with
more than $60 billion of hotel acquisitions and investments, involving more than 1,300
properties all over the world. Through use of this checklist, we endeavor to identify all the
peopleinvolvedinthetransaction(includingtheaffectedparties,advisors,andconsultants)as
wellasallthemajordocuments,taskstobeperformed,andtiming.Byidentifyingallthetasks,
due dates and responsible persons, we smooth the process and avoid overlooking something
importantaseveryonerushestowardtheclosingofthedeal.
The issues and concerns raised by this generic version of our various customized checklists
applytoanyhotelorotherhospitalityinvestmenttransactionwhetherapurchaseorsale,a
loanorfinancing.Thischecklistmustobviouslybeadaptedasappropriate.
The notes appearing at the end of the checklist are intended to illustrate some of the
interwovenlegalandbusinessissuespresentedwithahospitalityinvestmenttransaction.Most
ofthenotesarerelatedtoBuyerconcerns,becausetheBuyermustgetwhatit paysforand
bearstheongoingriskoftheinvestment.TheSeller'sgoalisalwaystolimitliabilitiesafterthe
saleandtogiveawayaslittleaspossibletorealizethefairvalueofthehotel.
Ifyoudliketodiscusshowthischecklistappliestoyourtransaction,pleasecontactus.
JimButler,Chairman
JMBMsGlobalHospitalityGroup
(310)2013526
jbutler@jmbm.com
Page1
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Parties
Address/Telephone/Fax/Email
Buyer
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
Buyer'sCounsel
Jeffer,Mangels,Butler&MitchellLLP
1900AvenueoftheStars,7thFloor
LosAngeles,CA900675010
Attention:___________________
TelephoneNo.(310)2038080
FacsimileNo.(310)2030567
EmailAddress
Buyer'sLocalCounsel
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
BuyersRealEstateBroker
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
Page2
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Parties
Address/Telephone/Fax/Email
Buyer'sSeniorLender
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
SeniorLender'sCounsel
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
BuyersMezzanineLender
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
BuyersMezzanineLendersCounsel
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
Seller
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
Page3
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Parties
Address/Telephone/Fax/Email
Seller'sCounsel
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
SellersLocalCounsel
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
SellersRealEstateBroker
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
GroundLessor
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
Escrow/TitleCompany
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
Page4
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Parties
Address/Telephone/Fax/Email
BuyersHotelConsultant
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
Appraiser
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
BuyersEngineer/PhysicalInspector
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
BuyersSurveyor
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
BuyersEnvironmentalConsultant
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
Page5
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Parties
Address/Telephone/Fax/Email
BuyersZoning/EntitlementsConsultant
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
BuyersADAConsultant
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
BuyersLiquorLicenseConsultant
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
BuyersInsuranceConsultant/Broker
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
CurrentManagementCompany
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
Page6
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Parties
Address/Telephone/Fax/Email
NewManagementCompany
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
NewManagementCompanysCounsel
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
Franchisor
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
FranchisorsCounsel
____________________________
____________________________
TelephoneNo.(___)________
Attention:____________________
TelephoneNo.(___)________
FacsimileNo.(___)________
EmailAddress
Page7
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Table Of Abbreviations
B
BC
CIR
DR
EC
F
FIN
INC
LC
LEN
M
N/A
R
RCV
S
SC
TC
Buyer
Buyer'sCounsel
Circulated
Draft
EscrowCompany
File
Final
Incomplete
LocalCounsel
Lender
Manager
NotApplicable
Record
Received
Seller
Seller'sCounsel
TitleCompany
Schedule Of Documents
Document
Responsible
party
Status
I.
Organizational/AuthorizationDocumentsOfSeller(WhereSellerisa
limitedpartnershipwithacorporategeneralpartner)
1.
CertifiedCopyofPartnershipAgreement
2.
ConsentofPartners
SC
3.
CertificateofLimitedPartnership
4.
CertificateofGoodStandingStateofOrganization
SC
5.
CertificateofGoodStandingStateinwhichHotelislocated
SC
6.
FictitiousBusinessNameStatement
Page8
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Document
Responsible
party
Status
7.
CertifiedArticlesofIncorporationofGeneralPartnerofSeller
8.
CertifiedBylawsofGeneralPartnerofSeller
9.
CertificateofGoodStandingofGeneralPartnerofSeller
SC
10.
CorporateResolutionofGeneralPartnerofSeller
SC
11.
IncumbencyCertificateofGeneralPartnerofSeller
SC
12.
SS4/TAXIDNUMBER
II.
Organizational/AuthorizationDocumentsOfSeller(WhereSellerisa
limitedliabilitycompany)
1.
CertifiedCopyofOperatingAgreement
2.
CertifiedCopyofArticlesofOrganization/Certificateof
Formation
3.
CertificateofGoodStandingStateofOrganization
SC
4.
CertificateofGoodStandingStateinwhichHotelislocated
SC
5.
AuthorizationofMembers
SC
6.
AuthorizationofManager
SC
7.
IncumbencyCertificate
SC
8.
SS4/TAXIDNUMBER
III.
ConveyanceAndClosingDocuments
1.
PurchaseandSaleAgreement
BC/SC
2.
AssignmentofPurchaseandSaleAgreementtoBuyers
Nominee
BC
3.
GroundLessor'sEstoppelCertificateandConsent
BC
4.
AssignmentofGroundLease
BC
Page9
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Document
Responsible
party
Status
5.
DeedinformusedinStatewhereHotelislocated
BC
6.
SeparateDocumentaryTransferTaxDeclaration/Affidavitof
Value
TC
7.
PreliminaryChangeofOwnershipReport(forCalifornia)orits
equivalent
TC
8.
OtherAffidavits/RequirementsforRecordationofDeedtobe
providedbyBuyerslocalcounsel
TC
9.
TenantEstoppelCertificates
BC
10.
AssignmentandAssumptionofIntangibleProperty
BC
11.
AssignmentofClaims(includinginsuranceproceedswhere
applicable)
BC
12.
AssignmentandAssumptionofLeases/Subleases(including
consentsofgroundlessor)
BC
13.
ServiceContractsandEquipmentLeases,AdvancedBooking
Agreements,EmploymentContracts
BC
14.
AssignmentandAssumptionofUnionContracts
BC
15.
BillofSale
BC
16.
SellersClosingCertificate/AffirmationofWarranties,if
requiredbyPurchaseandSaleAgreement
SC
17.
BuyersClosingCertificate/AffirmationofWarranties,if
requiredbyPurchaseandSaleAgreement
BC
18.
PostClosingHoldbackEscrowAgreement
BC
19.
OccupancyTaxClearanceCertificateorConditionalCertificate
LC/SC/M
20.
SalesTaxClearanceCertificate
LC/SC/M
21.
EmployeeWithholdingTaxClearanceCertificateorConditional
WithholdingCertificate
LC/SC/M
Page10
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Document
Responsible
party
22.
ResaleCertificate/SellersPermitforinventory
23.
Status
BC/LC
ExistingManagementAgreement
BC
A.
Manager'sEstoppelCertificateandConsentand/or
GeneralRelease
BC
B.
Termination/AssignmentofManagementAgreement
BC
24.
NewManagementAgreement
BC
25.
ExistingFranchiseAgreement
BC
A.
Franchisor'sEstoppelCertificateandConsentand/or
GeneralRelease
BC
B.
TerminationofFranchiseAgreement
BC
26.
NewFranchiseAgreement/PIPRequirements
SC
27.
FranchiseDefaultNotices
BC
28.
Golf
BC
A.
EstoppelCertificatereGolfCoursePropertyUse
Agreement
BC
B.
AssignmentandAssumptionofGolfCoursePropertyUse
Agreements
BC
C.
NoticereAssignmentofGolfCoursePropertyUse
Agreements
BC
29.
OffSiteFacilitiesandAmenitiesAgreements
BC
A.
EstoppelCertificatesandConsentsforOffSiteFacilities
andAmenitiesAgreements
BC
B.
AssignmentofOffSiteFacilitiesandAmenities
Agreements
BC
30.
Covenants,ConditionsandRestrictions
BC/LC
Page11
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Document
Responsible
party
Status
A.
DeclarantorOwnersAssociationEstoppel
BC/LC
B.
AssignmentofDeclarantsRights
BC/LC
31.
AccountTransferLetter
BC
32.
MotorVehicleCertificatesofOwnership/BillsofSale
33.
AssignmentofTradeNames/TrademarksandOtherIntellectual
Property
BC/LC
34.
PaymentofConveyanceTax(RealandPersonal)
35.
NoticestoTenantsofAssignment
36.
NoticestoVendorsofAssignment
37.
AttorneyClosingInstruction/RecordingLetter
BC/SC
38.
ProrationsSchedule
B/S
39.
BuyersSettlementStatement
TC
40.
BuyersExchangeDocumentswithQualifiedIntermediary
TC/BC
41.
TitleRequirementsfromSeller(seealsoseparateTitlesection
below)
TC/SC
A.
SellersGapIndemnitytoTitleCompany
TC/SC
B.
SellersMechanicsLienIndemnitytoTitleCompany
TC/SC
C.
Owner'sAffidavittoTitleCompany
TC/SC
D.
FIRPTA(inlieuofwithholdingtaxonnonUSSellersIRC
1445)andEquivalentStateCertificate
TC/SC
42.
DocumentsPermittingContinuationofLiquorOperations
(temporaryliquorlicense,assignmentofliquorlicense,interim
agreementforuseofexistingliquorlicense)
LC/BC/SC/M
43.
UpdatedRentRoll
S/M
Page12
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Document
Responsible
party
Status
44.
UpdatedPersonalPropertyInventory
S/M
45.
UpdatedListofReservationAgreementsandBookings
S/M
46.
ScheduleofStoredLuggage
S/M
47.
Tradename/Trademarkfilings/Transfers
S/SC
48.
Buyer/ManagerPropertyandLiabilityInsurance
BC/M
49.
[AnyotherclosingdocumentsrequiredbythePurchaseand
SaleAgreement]
BC/SC/M
50.
NoticetoUtilityCompaniesrechangeinownership
51.
PaymentofDepositstoUtilityCompaniesrecontinuingservice
52.
UtilityMeterReadings
LEN
53.
HouseFunds
54.
TrayLedger(currentguestaccruedcharges)
55.
DeliveryofKeys
IV.
LoanDocuments
1.
LoanAgreement
LEN
2.
PromissoryNote
LEN
3.
MortgageorDeedofTrust
LEN
4.
CashManagementAgreement
LEN
5.
AssignmentofLeasesandRents
LEN
6.
OtherAssignmentDocuments
LEN
7.
EnvironmentalIndemnityAgreement
LEN
8.
Guaranty(ies)
LEN
Page13
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Document
9.
Responsible
party
Status
EstoppelCertificatesfromMajorTenants
LEN
10.
FranchiseComfortLetter
LEN
11.
AssignmentandSubordinationofManagementAgreement
LEN
12.
InterestRateSwapAgreement
LEN
13.
UCC1/UCC1FixtureFiling
LEN
14.
OtherLoanDocuments
LEN
15.
BorrowersCounselsLegalOpinion
BC/LC
16.
EscrowinstructionsfromLendertoTitle
LEN
V.
DueDiligenceItemsProperty
LEN
1.
Appraisal
2.
PhysicalInspectionReports/Surveys
A.
Structural
B.
Seismic
C.
MEP
D.
Mold
E.
ADA
F.
Soils
G.
FireSystemsandHealthInspection
H.
ElevatorSafetyInspections
I.
LEEDCertification/Survey
3.
Copiesofanycurrentwarranties(roof,HVAC,etc)
Page14
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Document
Responsible
party
Status
4.
GroundLease
5.
TenantLeases
6.
Subleases
7.
GolfCoursePropertyUseAgreements
8.
OtherOffsiteFacilityandAmenitiesAgreements
9.
Phase1EnvironmentalSiteAssessmentandOtherStudies
10.
Phase2EnvironmentalSiteAssessment,ifrecommendedin
Phase1report
11.
ListofHazardousMaterialsUsedorStored
12.
ListofAllStorageTanks
13.
Zoning/Permit/EntitlementReportbyConsultant
14.
ZoningLetter
15.
ListofPlansandSpecificationsandCopies
16.
ListofAccountsReceivable
17.
ListofSeller'sPayables
18.
ListofReservationAgreementsandDepositsandCopies
19.
RentRoll
20.
ListofSpaceLeases
21.
STARReports
22.
ListofEquipmentLeases
23.
ListofMaintenanceandServiceContracts
24.
ListofEmployees
Page15
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Document
Responsible
party
Status
25.
ListofEmploymentContracts
26.
UnionContracts
27.
AccruedVacation/SickPay
28.
WARNAct/PlantClosingLawNotification
29.
EmployeeBenefitPlans(ifMultiEmployer,thenexplore
WithdrawalLiabilityuponchangeofemployer)
30.
EmployeeWithholdingTaxBills
31.
UCCSearch(StateofFormationandStateWhereHotel
Located)
BC/TC
32.
LitigationSearch
BC/TC
33.
ListofLitigation(includingpotentialclaimsandjudgments)
A.
WorkersCompensationClaims
B.
OtherPending/PotentialClaims
C.
ListofAgencyNoticestoComply/Violations
D.
Unfairlaborpracticeclaims
34.
ScheduleofConstructionWorkinProgress
S/TC
35.
BooksandRecords
A.
OperatingReportsandFinancialStatements
B.
FF&EReconciliations
C.
CurrentAnnualPlan
D.
Accrued/PrepaidExpenses
E.
BankAccountListing
Page16
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Document
F.
36.
Responsible
party
Othercorrespondence,recordsandfiles,includingguest
information,marketingcorrespondence,etc.
Status
RealPropertyTaxBills
37.
Sales/GeneralExciseTaxBills
38.
TransientOccupancyTaxBills
39.
ListofTaxReturnsandCopiesofCanceledChecks(Sales,
Occupancy,EmployeeWithholdingTax)
40.
ListofLicensesandPermits(SeeSectionVI)
41.
CertificatesofOccupancy
42.
BuildingPermits/Entitlements
M/LC
43.
ExistingLiquorLicense
44.
Inventory
A.
InventoryofOwner'sPersonalProperty
B.
InventoryofManagementCompany'sPersonalProperty
C.
LiquorInventory
45.
ExistingInsurancePolicies(considernamingBuyerasadditional
insured)
46.
ExistingManagementAgreement
47.
UtilityBills
48.
ListofMotorVehicles
49.
MarketingVideosandBrochures
50.
RelianceLettersforanyexistingreportsBuyerisrelyingupon
Page17
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Document
Responsible
party
51.
InsuranceCertificatesrequiredbyPurchaseandSale
AgreementforentriesonProperty
VI.
TitleMatters
1.
ALTASurvey,includingfloodzonecertification
2.
3.
Status
TC/LC
TableArequirementsforSurvey
LC
LendersFormofSurveyCertificate
LEN
4.
Lendersendorsementrequirements
LEN
5.
PreliminaryTitleReports
TC
6.
UnderlyingTitleDocuments
TC
7.
ProformaOwner'sTitlePolicy,includingendorsements
TC
8.
ProformaALTALoanTitlePolicy,includingendorsements
TC
Document
Non
transferable
mustapply
Must
transfer
Noneedto
transfer
VII.
PERMITSANDLICENSESTOBEOBTAINEDBYNEWMANAGEMENT
COMPANYAND/OROWNER
1.
HealthPermits(State)
A.
FoodServicePermits
________
________
________
B.
SanitationPermits
________
________
________
C.
PoolPermits
________
________
________
2.
GeneralExciseTaxLicense(State)
________
________
________
3.
TransientAccommodationsTaxRegistration(State)
________
________
________
Page18
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
Document
Non
transferable
mustapply
Must
transfer
Noneedto
transfer
4.
ElevatorPermits(State)
________
________
________
5.
OtherEquipmentOperatingPermits(State/Local)
(e.g.,AirPermits)
________
________
________
AirportPermits(State)
________
________
________
6.
A.
GreetingPermit
________
________
________
B.
GroundTransportationPermit
________
________
________
C.
PermitforUseofAccessRoad
________
________
________
7.
HarborPermit(State)
________
________
________
8.
BeachMaintenancePermit/RightofEntry(State)
________
________
________
9.
LiquorLicense(CountyorState)
________
________
________
10.
FCCRadioPermits
________
________
________
11.
PostalPermit
________
________
________
12.
Underground/AbovegroundTankPermit(County)
________
________
________
13.
Solid/HazardousWasteDisposalRecords
________
________
________
14.
PermittoConnecttoSewerSystem(County)
________
________
________
15.
DieselOilandLiquefiedPetroleumGasTaxExemption
Certificate(State)
________
________
________
Viii.
Additionalissuesforconsideration
1.
Acommonerrorindraftingandnegotiatingpurchaseagreementsisthefailure
of the parties to agree on exactly what is being purchased for the "purchase
price."IstheBuyeracquiringthepropertyandeverythinginitforasinglegross
Page19
Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
salesprice?OristheBuyermerelypurchasingthepropertywithadditionalsums
andadjustmentsowedforexistinginventory,goods,licenses,permits,andother
such matters that are the subject of a calculation at or before closing? The
differencemayamounttohundredsofthousandsofdollarsinatransaction.
The parties to a purchase and sale transaction should also give careful
consideration to the representations and warranties that will be exchanged in
the purchase agreement. The representations and warranties serve two
importantbutseparatefunctions:(1)creatingliabilityandaclaimforindemnity
whentheotherpartymakesarepresentationthatlaterprovestobeuntrue;and
(2) flushing out the issues through disclosure required by the agreement and
focusing the parties on important issues and facts. When a Buyer agrees to
accept certain representations and warranties being made only to "Seller's
knowledge," the Buyer should seriously consider requesting additional comfort
in the form of representations and warranties from (or after the Sellers
consultation with) the asset manager, the onsite propertymanager or general
manager, the director of marketing, the controller, and the chief structural
engineer.
2.
JMBM has often been able to use the ground lessor's estoppel certificate as a
vehicle to clean up deficiencies in the ground leasea purpose for which the
certificateisnotreallyintended.
3.
WhileanassignmentofSeller'sclaimsmayseeminnocuous,wehavefoundthat
obtaining an assignment of the Seller's claims, or at least the right to share in
those claims, has enabled our Buyerclients to assert claims or raise various
defenses they would not otherwise have, including crossclaims and
counterclaims in connection with preClosing liabilities that result in the Buyer
beingnamedasaconvenientdefendantinthelawsuit.
For instance, in connection with an acquisition in Hawaii, we were able to use
theSeller'sassignmentofclaimsprovisiontoassertaclaimagainstaninsurance
carrier for damage that occurred preClosing and was discovered significantly
aftertheClosingofthetransaction.ThisprovisionwascriticalbecausetheSeller
didnotbreachanyofhisrepresentationsorwarrantiesand,therefore,theBuyer
would not have had any rights to pursue the Seller or the Seller's insurance
carrierwithoutthecontractualassignmentoftheSeller'sclaims.
4.
It is important for the Buyer to obtain the tax clearance certificate as close in
timetotheClosingaspossible.Anumberofcountiesorothertaxingauthorities
willnotissueanoccupancytaxclearancecertificateorequivalent;however,they
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JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
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We cannot tell you how often we have seen parties, proceeding without the
benefit of The JMBM HIT List, forget to transfer ownership of motor vehicles
pursuant to the state transfer certificates. Many people just assume that, by
virtue of the bill of sale, the transfer of ownership has been effectuated.
However, for legal title to pass, the parties must comply with the specific
certificationrequirementsofthestateinquestion.
WehavealsooftenfoundthatBuyersassumethatthevehiclesareowned,but
through our diligence often we have uncovered that they are subject to long
term leases, some of which may prohibit transfer. In such situations, we
recommendobtainingaconsentandestoppelcertificatefromthevehiclelessor.
Inmoststates,therulesgoverningthetransferofpleasureboatsandvesselsare
similar to those governing transfers of motor vehicles. In other words, an
effective transfer requires appropriate specific certification from the relevant
stateagencyoftenthesameonethatregulatesmotorvehicles.
6.
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JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
7.
You cannot believe how frequently Buyers fail to pay attention to equipment
leasesandtheimpacttheycanhaveontheoperationofthepropertyafterthe
Closing. Many equipment leases are in fact longterm capital leases that may
impose millions of dollars in liability over their terms. Often these equipment
leases relate to telephone systems, televisions, computers, and related
operationalequipment,andmaybenonassignablebytheirtermsorresultina
default and acceleration upon an unconsented transfer. Therefore, JMBM
strongly recommends that the diligence review include a thorough analysis of
the equipment leases themselves to determine whether they are assignable,
understand the terms and the payment schedule, and obtain estoppel
certificatesfromtheequipmentlessorsand/orattempttonegotiateabuyoutof
thesame,ifappropriate.
8.
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JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
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9.
AlitigationsearchcanbeaveryhelpfulprotectivetoolforaBuyer.Thesearch
should include searches in both the state and federal jurisdictions, and should
include a search under the property's formal and "common name," as well as
underthenameoftheownershipentityandthemanagementcompany.
10.
The Buyer should obtain a schedule of prepaid expenses (or accrued liabilities)
thataretobetransferred.Considerthefollowing:(1)productionandothercosts
forshowsandentertainmentattheproperty;(2)realpropertytaxes;(3)charges
for water, gas, electricity, telephone, telegraph, and other liabilities; and (4)
transferablelicensefeesandotherprepaidamountsonmaintenanceandrental
contracts.
11.
TheBuyershouldobtainalistofallinventorytobepurchased.Thelocationof
the inventory should be ascertained. Consider counting and tagging certain
inventoryitemsinadvanceoftheClosingdate,providedthestorageareascan
be sealed or segregated to prevent removal of items. These items include
reserve stocks of linen,china, glassware,and silver;certain slowmoving repair
and maintenance items (engineering supplies); general stores; stationery and
other paper supplies; and excess stocks of beverage inventory. The Buyer and
Sellershouldagreeonthemethodtobeusedinvaluingthefollowinginventory
items: (1) opened packages or cartons; (2) inventories or supplies issued from
storeroomstothevariousdepartments;and(3)openbottlesofbeverages.The
Buyer should coordinate the planning for the physical inventories of all of the
inventorytobepurchasedanddeterminewhoistophysicallycount,price,and
extendtheinventories.TheBuyershoulddetermineifaninventorywillbetaken
ofthefurniture,fixtures,furnishings,appliances,equipment,improvements,and
personal property that will be purchased. These items may be itemized on
ExhibitAoftheBillofSale.TheBuyershouldcoordinatetheplanningforthese
physicalinventories,ifappropriate.
12.
TheBuyershouldascertainthemethodtobeusedinproratingthevariousutility
charges. A cutoff statement should be requested from the various utility
companies of their charges at the Closing date. Preferably, a written
confirmationofsuchcutoffdateshouldbeobtainedfromtheutilitycompanies.
Ifcutoffstatementsarenotobtained,theutilitybillthatisreceivedsubsequent
to the closing date should be prorated based on meter readings or on a time
basis.
13.
TheBuyershouldperformacountofcashonhand,includinghousebanks,petty
cash funds, and all other funds belonging to the property. Vouchers and gift
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JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11
certificates should also be listed and the unredeemed amounts should either
paidtotheBuyerorcreditedagainstthepurchaseprice.
14.
SomeBuyersfocusonwhattheybelievetobethemajortransactionalaspectsof
an acquisition, such asthe purchase agreement, therevenues andexpenses of
the property, the physical and structural aspects of the property, the terms of
managementandfranchisearrangements,andsimilaritems.Whiletheseitems
are certainly critical to the transaction, one should not fail to understand the
importance of obtaining or retaining the various permits and licenses that are
necessaryforthepropertytocontinuetooperateasagoingconcern.Failureto
maintain any one of the operational permits that were in place withthe Seller
prior to Closing may have an adverse effect on the operation of the property
afterClosing.
For instance, if there is a lapse in the liquor license, the property will be
prevented from selling liquor to its guests. A great deal of customer goodwill
may be lost as weddings, group meetings, conventions, and other profitable
business is put in jeopardy. The results may be a dip in beverage revenue, but
thenetnegativeguestexperienceduringthattimemayhaverepercussionsfar
beyond the period that the property was unable to serve liquor. After all, a
majorcomponentofaproperty'svalueisthegoodwillestablished.Thesameis
true if the property fails to maintain or obtain a cabaret license, for instance,
whichcouldresultinhavingthenightclubatthepropertyshutdown.Depending
onthetypeofproperty,thismayhaveadevastatingeffect.
Theseareobviousexamplesofpermitsandlicensesthatapropertymighthave,
but there are others less obvious, which may include the PUC (public utilities
commission) permit to allow the pickup and dropoff of guests at the local
airport. Again, while it may not affect the property's revenue immediately, it
mayaffecttheguestexperience,andthereforetheproperty'sreputation.
AnothersuchexampleisFCCpermits,whicharerequiredtocommunicateover
theairwaves(i.e.,walkietalkieradiotransmissiontoandfromlimousines,vans,
busses,andboats).Forexample,inonetransactionthatJMBMhandled,oneof
themoredifficultthingsinclosingthedealwasassuringthemaintenanceofthe
FCC permits so that the resort property would continue to have the ability to
take its guests out on snorkeling and scuba dives off the coast where the
propertywaslocated.
15.
The Buyer should obtain a schedule of accrued wages and salaries of property
employees as of the Closing date, together with accruals for vacation pay, sick
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JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
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pay, holidays, etc., and any other employee benefits such as management
bonuses. The accuracy of these various accruals should be tested. The Buyer
should also: (1) obtain a calculation of the accrued payroll taxes and test the
accuracyofthecalculation;(2)obtaincopiesofthephysicalinventories(priced
and extended) and test the accuracy of the price of the extensions on a test
basis; and (3) complete all proration calculations that require the receipt of a
subsequent billing, as follows: (a) electricity, (b) telephone, (c) water, (d) fuel,
and (e) gas. The calculations of the prepaid expense prorations (real property
taxes and any other items) should be reviewed. The Buyer should obtain a
schedule summarizing the concession rent and fees due to the property at the
beginningofthemonthandtheminimumandpercentagerentandfeesduefor
the month of Closing, then calculate the prorated rent and fees. The Buyer
shouldreviewthefollowingclosingadjustments:(1)paymentsmadepursuantto
anysubleases,leases,contracts,oragreementspertainingtotheproperty;and
(2) all lease, security, deposit, or advance rents. The Buyer should obtain a
detailedlistingofthetravelagentcommissionspayableforthegueststhatwere
inhouse on the night of Closing and test the calculation of the prorated
commissions. The Buyer should inquire if additional prorations are appropriate
for such items as follows: (1) retroactive premium adjustments for workmen's
compensation insurance; and (2) tradeout agreements. The Buyer should
prepareaprorationscheduleoftheamountsduefrom(to)theBuyerandSeller.
The Buyer should obtain the aged accounts receivable listing as of the Closing
dateasprovidedforinthePurchaseAgreement.
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Jim Butler
JEFFER MANGELS BUTLER & MITCHELL LLP
1900 Avenue of the Stars Los Angeles, CA 90067 (310) 201-3526 jbutler@jmbm.com
LA 9202571v11