Author Archives: Christopher P. Finney

Frequently we encounter situations in which a buyer under a purchase contract, be it commercial or residential, desires to take occupancy of real estate before the closing (i.e, the tender of the purchase price).

A buyer may want early occupancy for a host of reasons. For both commercial and residential buyers, they many times desire occupancy before their financing can be formally approved. This might be because a commercial buyer desires to move or “rig” his manufacturing equipment into a property by a certain date. Many times commercial and residential buyers want to modify the property in some signifiant way such as moving walls, re-doing a kitchen or changing the electrical panel.

It also may be because the seller can’t close because of a title problem, or some other seller performance issue.

Does it legally make sense to allow for early occupancy? Is this a good idea?

From the buyer’s perspective

From the buyer’s perspective, it’s sort of a no-risk proposition, in that it gets the use and occupancy of the property without paying for it. And, as is discussed below, it gives the buyer the full chance to the the property for a “test drive,” before buying.

However, if the buyer is making a costly move or expensive improvements to the property, it should consider the “what if” if the seller can’t or won’t ultimately close.

From the seller’s perspective

But many of the reasons it makes sense for a buyer to take early occupancy are the precise reasons why it might be a bad idea for the seller to permit it.

First, by giving the buyer the right to a “test drive,” he invariably finds things with the property that are either defective or less than optimal, and then the buyer demands repairs or modifications before agreeing to close.

The reality is that a buyer needs a place to operate his business; he needs a place to live. Depriving a buyer of possession until he tenders the purchase price is strong leverage to force a closing.

But if the closing can’t occur because the seller can’t perform, such as a title problem, it may be a way to “keep the buyer”under contract for a later closing once the seller’s performance problem is resolved.

Removing a buyer from the property if he doesn’t close

Then, after early occupancy is granted, there is the problem if some exigency arises that prevents the buyer from closing: The financing is never approved, the buyer dies, a divorce, the business goes bankrupt, or a dispute among business partners arises. Any of these things can result in the buyer not closing pursuant to the contract, whether there is a contractual obligation to close or not.  So then what?

If that happens, the seller will have to legally remove a buyer from the property.

In the case of a residential occupant, regardless of the lack of justification of a tenant staying in the property, the owner must go through a judicial “forcible entry and detainer,” or eviction action. This can last from two to six months to judicially recover possession (and extreme circumstances, longer). In the case of a commercial occupant, they can be removed unilaterally (i.e., without court involvement) by the owner under certain circumstances. This article addresses non-judicial commercial set outs.

Nightmare scenarios

In addition to fighting to get property back from an occupant, there are circumstances in which an occupant does so much damage to a property it  is a nightmare for the seller: Property modifications and property damage such as to carpeting, doors, walls, and the like. Simply recovering possession can be only half the “cost” of a bad choice of allowing early occupancy. And as a landlord I can tell you: You simply can’t imagine the way some tenants live: Pet damage, holes in walls and doors, and destroyed carpet, all occurring in relatively short periods of time.

Unpermitted early occupancy

We also have encountered a situation in which buyer have just taken it upon themselves to “move into” a property with no permission forth seller.  As unimaginable as it seems, it has happened. We once had an out-of-state manufacturing client with a factory north of Dayton. They had moved out of the property to their home plant in Minnesota. They had no more personnel on the ground in Ohio. The buyer was a local gun manufacturer. Their equipment was huge milling and drilling machines that took hundreds of thousands of dollars for “rigging” to move. Thus buyer not only had the audacity to move into the property before closing, and commenced his manufacturing and shipping operations, all without the seller’s permission, they actually posted photos of their new facility on their company web site!

Our seller client, asked us for options, and we advised them to just “lock out” the tenant and let them suffer the consequences.  Boy, did that get their attention. Within hours of them finding the doors locked, they quickly found a way to get the transaction closed, and paid our client rent for the early occupancy, but also a penalty and our attorneys fees.

Insurance issues

Even allowing a buyer to “move his stuff into the garage” before closing can cause these “early occupancy” problems.  But one scenario to consider is that once a tenant occupies a property, it is no longer “owner occupied” and the property and casualty protection that exists on homes and businesses may not cover tenant incidents and tenant property. In one fact pattern with which I am familiar, the house burned to the ground after the tenant moved his furniture into the garage. In such scenario, the personal property of the tenant simply was not insured. Who is going to cover those losses?

Written agreement

In any event, if a buyer is going to take early occupancy, the parties should memorialize their agreement in writing: (i) What happens if the closing is further delayed? (ii) Is the tenant allowed to modify the property? (iii) is there a security deposit against damage? (iv) Who is responsible for insuring against personal injury, wrongful death, damage to the property itself and damage to the buyer’s personal property during the period of early occupancy? These are just some of the issues the early occupancy agreement should address.

Conclusion

In short, early occupancy is one of those things that might seem like a good idea a the time, but in retrospect it was unwise or even a nightmare. It should be undertaken only with open eyes and great caution by both parties, considering the “what if” if the closing never occurs, considering the insurance issues, considering potential property damages, and getting all aspects of the agreement in writing.

For assistance with your real estate needs, contact Isaac T. Heintz (513.943-6654) or Eli N. Krafte-Jacobs (513.797-2853).

I got a great question from a client this past week. He had a seller who was located in Mexico for his job. The facility at which he worked was nowhere near a US Embassy or Consulate, and the drive to the Embassy or Consulate was somewhat dangerous.  How could he get a valid and proper signed and notarized deed back to Ohio for the closing?

I thought: What a great chance for a blog entry on foreign execution and acknowledgement of recordable instruments (deeds, mortgages, etc.) in Ohio! (How exciting is my life!)

Domestic execution

First, when I started my career in real estate law, most (not all) instruments required two witnesses and a notary public to sign in order for the instrument to be recordable in Ohio.  Since then, the requirement for two witnesses has been dispensed with, so all that is needed for an execution of a recordable instrument in Ohio is a signature of the owner and an acknowledgement (notarization) (there are lots of other requirements as to the form).

Execution and acknowledgement in other states

Then, O.R.C.  § 5301.06 provides:

All deeds, mortgages, powers of attorney, and other instruments of writing for the conveyance or encumbrance of lands, tenements, or hereditaments situated within this state, executed and acknowledged, or proved, in any other state, territory, or country in conformity with the laws of such state, territory, or country, or in conformity with the laws of this state, are as valid as if executed within this state.

So, for other states and territories of the United States, meeting the execution requirements in that state (usually just a signature and an out-of-state acknowledgement) is just as valid as one from Ohio.

Execution and acknowledgement in foreign countries

Further, the above-statute provides that an acknowledgement from another country is valid if made in conformity with the laws of the other country.

That means that the Ohio title attorney signing off on the instrument would need to know the law the other country, which they will not (and since it is written in their language, would be difficult to research and discern with the degree of certainty required to assure quality transfer of title).

In this instance, the Mexican notary required an expensive (relatively) translation of the instrument into Spanish before acknowledging that instrument, and the Ohio title attorney would not accept the dual-translations in the document for recording.  For these reasons, it was a becoming a disaster before the matter came to our firm.

That takes us to the second option for execution outside of the United States: O.R.C. § 147.51:

Notarial acts may be performed outside this state for use in this state with the same effect as if performed by a notary public of this state by the following persons authorized pursuant to the laws and regulations of other governments, in addition to any other persons authorized by the laws and regulations of this state:

(A) A notary public authorized to perform notarial acts in the place in which the act is performed;

(B) A judge, clerk, or deputy clerk of any court of record in the place in which the notarial act is performed;

(C) An officer of the foreign service of the United States, a consular agent, or any other person authorized by regulation of the United States department of state to perform notarial acts in the place in which the act is performed;

(D) A commissioned officer in active service with the armed forces of the United States and any other person authorized by regulation of the armed forces to perform notarial acts if the notarial act is performed for one of the following or for a dependent of one of the following:

(1) A member of the merchant marines of the United States;

(2) A member of the armed forces of the United States;

(3) Any other person serving with or accompanying the armed forces of the United States.

(E) Any other person authorized to perform notarial acts in the place in which the act is performed.

As a practical matter, I just tell clients to get themselves to a US Embassy or Consular office.  It is best to call in advance and make an appointment (a) to assure they perform these services at the office you intend to visit, (b) to assure a notary is present at the time you show up, and (c) to assure the Embassy or Consulate is open at that time.  Further, embassies and consulates are used to performing these services for American citizens and residents.  This procedure is blessed by Section (C), above.

Then, members of the Armed Forces and their families have the additional option of going to a military base and having “a commissioned officer in active service with the armed forces of the United States and any other person authorized by regulation of the armed forces to perform notarial acts” performing the acknowledgement.

How about the new electronic notary process?

So, I thought when the problem was presented to me, wouldn’t this be a perfect use of the e-notary law (O.R.C. § 147.591, et seq.)?

Well, no, it would not, as I would learn.

Although the e-notary situated in Ohio can perform valid acknowledgements remotely, including with signers sitting in other states, he has no authority to acknowledge an instrument for a principal sitting outside of the “territory of the United States” O.R.C. § 147.64 (C).  Well, that threw cold water on that idea!

Corporate and LLC signatures

If the owner of the property in question is a corporation or a limited liability company, it may be possible to sign a corporate resolution (not requiring a notary) authorizing someone in the US to sign and have acknowledged the recordable instrument, thus saving the need to drive to an Embassy or Consulate.

Conclusion

So, in short, if you are outside of the United States or its territories, and want to execute and properly notarize a real estate instrument for recording in Ohio, (a) have the documents emailed to you where you are, (b) print them out, (c) get thee to an Embassy or Consulate and (d) Fed Ex them back to the closing agent in Ohio (subject to an escrow agreement or such other assurances as your attorney advises). If you are in a country without diplomatic relations with the United States, you may be out of luck.

For assistance with your Ohio and Kentucky real estate closing needs, please contact Rick Turner (513.943.5661), Isaac Heintz (513.943.6654) or Eli Krafte-Jacobs (513.797.2853).