By Tenant Advisory Group · Updated
Short answer
A sale-leaseback needs three sets of documents: property records such as the deed, title policy, survey, environmental reports and building information; corporate and financial records such as entity documents, authority to sell, financial statements and loan payoff details; and a written list of the lease terms you want. Gather them before marketing so buyers can price with confidence.
How to use this checklist
This list is written for the controller, CFO or owner who will be asked to find the paperwork. Not every item applies to every property, and your attorney may add items for your situation. Missing documents are normal, especially for buildings held for decades. Note what is missing and move on. Knowing a gap exists is useful in itself, because it tells your advisors what a buyer will have to order or what you may need to recreate.
- Create a secure electronic folder with three sections matching the groups below.
- Assign one person to own the folder and track what has been found, what is missing and what is outdated.
- Have your attorney and broker review the contents before anything is shared.
- Release documents to investors only after a confidentiality agreement is signed, and in stages.
Property: ownership, title and survey
- Recorded deed showing the current owner of record
- Owner's title insurance policy from when the property was acquired
- Most recent survey, of any age, and any site plans
- Legal description and tax parcel numbers for every parcel
- Recorded easements, covenants, restrictions and reciprocal agreements
- Existing mortgage, note and any assignment of rents
- Lien releases for loans that have been paid off
- Any purchase option, right of first refusal or right of first offer granted to anyone
- Any existing lease between a related real estate entity and the operating company
- Leases, licenses or agreements with other occupants: subtenants, antenna or billboard operators, parking users
Property: environmental and regulatory
- All prior environmental reports, including Phase I and Phase II assessments
- Records of underground or aboveground storage tanks: registration, testing, removal and closure
- Any regulatory correspondence, notices or closure letters relating to the site
- Environmental permits and waste handling records
- Asbestos surveys or other hazardous material surveys
- Zoning classification, and any variances or special use approvals
- Certificates of occupancy
- Building permits for additions and major build-outs, with final sign-offs
- Any open code violations or notices
- Flood zone determination or elevation certificate, if available
If the site has an industrial past, show the environmental file to environmental counsel before it goes anywhere else. Counsel can advise on what the documents mean and how to present them.
Property: building and operations
- Building plans and as-built drawings
- Building size, land area, clear heights, dock and door counts, power and other specifications
- Roof age, warranty, and repair or inspection history
- HVAC and mechanical equipment list with ages and service records
- Fire protection and life-safety inspection reports
- Elevator, boiler or other required inspection certificates
- Capital improvements made over recent years, with dates and costs
- Service and maintenance contracts
- Property tax bills for recent years, plus any assessment appeals or incentive agreements
- Property insurance policy, premiums and loss history
- Utility bills for recent years
- A schedule separating building components from machinery, equipment and trade fixtures the company will keep
The last item is easy to overlook and prevents disputes. The purchase agreement conveys real estate. Cranes, compressors, generators, racking and process equipment should be identified as staying with the company unless you intend otherwise.
Corporate and financial
- Formation documents for the entity that owns the property and for the entity that will be the tenant
- Operating agreement, bylaws, partnership or trust agreement showing who must approve a sale
- Certificates of good standing
- Organizational chart showing owners, parent, subsidiaries and affiliates
- Resolutions or consents authorizing the sale and the lease
- Financial statements for the tenant entity for recent fiscal years, with the accountant's report if audited or reviewed
- Year-to-date financial statements
- Financial statements for any proposed guarantor
- Schedule of existing debt, with lenders, balances, maturities and collateral
- Mortgage payoff letter, including any prepayment charge
- Loan and credit agreements, for review of covenants and consent requirements
- A short company overview: history, products or services, customers, employees and facilities
- Planned use of proceeds
- A summary of any pending or threatened litigation
- Your CPA's preliminary estimate of the tax and financial statement effects of the sale
Buyers will also ask the seller for tax and identification forms at closing. Your attorney and the title company will tell you which apply.
The lease terms you want
The third folder holds no historical documents. It holds your decisions. Write down your position on each lease term before investors propose theirs, and have your broker and attorney turn the list into a term sheet that accompanies the offering.
- Tenant entity and any guarantor
- Premises: the entire property, or a portion
- Initial term
- Number and length of renewal options, and how renewal rent is set
- Starting annual rent and how it was derived
- Rent escalation method and any cap
- Net lease structure: who pays taxes, insurance, utilities and maintenance
- Responsibility for roof, structure, parking lot and major system replacements
- Permitted use, written broadly
- Alteration rights and approval thresholds
- Expansion rights, if the site allows
- Assignment, subletting and change-of-control terms
- Security deposit, letter of credit or guaranty you are willing to give, and limits on each
- Financial reporting you will provide
- Surrender condition and treatment of existing specialized improvements
- Holdover terms
- Protection if the landlord's lender forecloses
- Any right of first offer or purchase right, after discussing the accounting with your CPA
- Casualty and condemnation terms
Documents you will sign along the way
It also helps to know what will be created during the transaction, so nothing arrives as a surprise.
- Confidentiality agreement with each prospective buyer
- Listing or advisory agreement with your broker
- Letter of intent covering both price and principal lease terms
- Purchase and sale agreement
- The lease, and any guaranty
- Memorandum of lease, if one will be recorded
- Subordination, non-disturbance and attornment agreement with the buyer's lender, if there is one
- Deed, bill of sale if any personal property transfers, and transfer tax declarations
- Title company documents: owner's affidavits, settlement statement and payoff instructions
- Termination of any existing related-party lease
We keep this checklist with clients from the first meeting and update it through closing, coordinating with the company's attorney and CPA so that requests from the buyer are answered once, from one organized set of records.
Frequently asked questions
What if we cannot find some of these documents?
That is common. Tell your attorney and broker what is missing. Many items, such as title records and surveys, can be reordered, and others can be replaced with a written summary.
Do we have to share financial statements?
Yes. The investor is relying on your company's ability to pay rent. Share them only under a confidentiality agreement, and release the most sensitive detail to the selected buyer only.
Who should assemble the documents?
Usually the controller or CFO, with the real estate attorney reviewing legal items and the broker organizing the package for investors.
Why is a list of lease terms part of a document checklist?
Because the lease is half the transaction. Deciding your terms in advance lets every bidder price the same lease, which makes offers comparable.
This guide is general information, not legal, tax or accounting advice. Have your attorney and CPA review any sale-leaseback before you commit to it.