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Real Estate Transaction Pitfalls

If you have bought, or are about to buy real property, several seemingly innocuous details are easily overlooked that later can cause you big problems. Here are the most frequently overlooked pitfalls so that you can avoid them:

Deed Restrictions – In our industry, it is not uncommon for petroleum properties to carry fuel brand deed restrictions. Particularly with properties that were previously owned at some point by refiners, those refiners commonly added brand restrictions to the deed. These restrictions are very onerous to lenders and for you as well if you ever decide to change brands. Before purchasing a piece of real estate, be sure to check all of the deed restrictions and if brand restrictions are found, work to have them removed before you buy so your hands won’t be tied and you can more easily get financing.

Environmental Clauses – Don’t ever believe any attorney that tells you there is standard environmental language. There isn’t! Every transaction must be carefully structured. You can even buy contaminated property and still be protected. Some real estate agreements specify responsibilities based on an Environmental Base Line. If you use this type of language, the demarcation date should be the date of close, which means you can’t use any old Phase II from a prior date. Also, be sure you consider migration issues from neighboring properties and to neighboring properties. If you are relying upon a state tank fund as your protection, remember they must be solvent for you to collect.

Brand Change – If you are purchasing a company that owns real estate leased to outside operators, and you anticipate changing brands, you will need to watch your timing. Technically PMPA only applies to termination and non-renewal, not a purchase situation, but the lines are tricky. Bear in mind when you buy, you can raise the rent at lease expiration because technically you have a new basis from the prior owner in the property, however PMPA says that rent must be consistently applied using a specific formula.

Changing from Dealer to Company Operations – If you are purchasing real estate with the express idea of converting the old company’s dealer sites to company operations, technically your choices are to wait until the renewal date, or do a raise and rebuild offer at a higher, yet reasonable rent which would be the old rent plus an add-on for development costs. Also, be sensitive to the fact that you may need to buy equipment and inventory from the existing dealer that was not part of your original purchase price.

These are just the most common pitfalls. Each transaction is unique; therefore, it’s wise to consult a competent petroleum attorney to keep you within the law.   One of the best is Al Alfano. He has worked exclusively in the petroleum industry since 1983 and is terrific with complicated petroleum real estate transactions. You can reach Al at 202-466-6502. And, no…Meridian doesn’t receive any kick backs from him. We just think he’s good!

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