For commercial transactions, gone are the days of the sit-down closing. The proliferation of instant communication technologies and document transfer systems are primarily to blame. As a result, commercial closings take place, almost exclusively, electronically. While there are many benefits to these remote closings, such closings have their own issues that typically can arise as a result of the speed with which numerous and conflicting messages can be distributed and the fact that these closings often rely on tangentially-involved third parties. Here are some general tips to help buyers and sellers (of real property, business assets, or business ownership interests) prepare for electronic closings:
- Be cognizant of which date is selected for closing: Typically, in a purchase and sale agreement, a closing date will be set out a certain number of days in the future that will allow sufficient time for a purchaser to perform requisite due diligence: 30 days, 45 days, 60 days, 90 days, etc. Often, the business day falling closest to the stated time-period is selected as the date for closing. Sometimes this date is set before attorneys are involved at the letter of intent stage. We recommend that purchasers and sellers, and their attorneys, take a closer look at the date set for closing, and follow these guidelines:
i. Unless other important considerations exist, be wary of setting a closing date on a Friday. Let’s face it – workplaces around the country on Fridays are not paragons of industrious and efficient activity and are often not fully staffed because of extended weekend plans. While the parties directly involved in the closing (attorneys, closing agents, the buyer, and seller) may be giving their full attention to the closing on the closing date, electronic closings often rely on the actions of third parties. For example, bank wires, which require multiple human approvals, are notoriously slow on Friday afternoons. Similarly, last minute changes requiring the input of a third party (i.e., expanding insurance coverage) can be more difficult to confirm on a Friday. If the purchase involves an operating business, a closing scheduled for Friday that fails to close can leave a lengthy limbo period over the weekend, especially where a buyer and seller had already put in place third-party transition teams and had begun the process of notifying vendors or suppliers of upcoming terminations or orders.
ii. Be wary of Mondays, also. A few of the considerations that apply to Friday closings also apply to Monday closings. Unless the deal is large enough that it will warrant unfailing attention by all parties involved throughout the weekend, gaps in deliverables that existed Friday afternoon will likely exist Monday morning. Closing may have felt far enough away on the Friday before closing, but on Monday buyers and sellers and other third parties often realize that they had not made adequate arrangements to timely close without a mad scramble.
iii. Set Closing in Advance of Actual Deadlines. When an actual deadline (like a tax exchange deadline) exists, communicate the deadline to your attorneys and, perhaps, under the advice of your attorney, the other parties to the transaction so that everyone can be on the same page. Unless other considerations exist, make sure the date for closing is set at least a few days, more if possible, before the deadline to ensure that the closing will occur in time.
2. Schedule to be available the days leading up to, and after a closing, if possible. Invariably, in the days leading up to closing, revisions to agreements will need to be approved, documents will need to be signed, and important decisions will have to be made. Closing statements are often not finalized and agreed to until the actual date of closing. Although many of us have busy schedules, plan to have access to phone and email in the days around closing. If your schedule will leave you out of pocket around closing, you should communicate your availability to your attorney well-in-advance of closing and provide alternative contact information if necessary.
3. Be responsive. For large transactions, closing documents may go through many iterations before being finalized. Because of the speed in which documents can be revised and distributed electronically, parties are more apt to send around minor revisions to documents. The timeframe for getting documents finalized can be significantly chomped up if a buyer or seller fails to review or approve revisions for just a couple of days. Ultimately, this lag increases the number of open items that closing agents, party attorneys and third parties will have to juggle at the time of closing. Additionally, matters may arise that could affect a purchaser or seller’s decision to move forward with a transaction; responsiveness may ensure you are able to walk away without penalty or amend the deal to more favorable terms.
4. Deliver what you must. If you have reason to believe that the other party to a transaction will attempt to renege on its closing obligations, in order to be entitled to all the remedies for default under a purchase agreement, you may still have to show that you were ready, willing and able to close on the date set for closing. Because there is no sit-down closing, you will have to do more than just show up to a physical location. In order to ensure you meet this standard for remote closings, deliver (to the closing or escrow agent, or other side, as appropriate), to the best of your ability, all documents required to be delivered to you under the purchase agreement, which may include deeds, assignments, or bills of sale. If you or your attorney cannot finalize all documents without the approval or input of the other side, send signature pages to such documents to the appropriate closing party to be held in escrow, and try to produce a written record showing that you submitted requested revisions or comments to closing documents to the other side. For a purchaser, demonstrating that you are ready, willing and able to close should also entail wiring the required purchase price to the appropriate closing or escrow agent. Your attorney should be able to guide you through this process.
As always, hiring an attorney with experience in commercial closings early in the purchase and sale process (prior to the drafting of a purchase and sale agreement) is the best way to ensure that a remote closing is handled as smoothly and professionally as possible. An experienced attorney will remind you of the considerations discussed above and walk you through any and all difficulties that may arise. If you have any questions leading up to the purchase and sale of commercial real property, business assets, or business interests, please feel free to reach out to me directly.