Published by MoASBO, November 2013

On occasion, a neighbor, an adjoining property owner or a community benefactor will approach a school district with an attractive offer to sell land.  The location, price or deal terms may look irresistible, but as with any transaction, discretion counsels caveat emptor or buyer beware.

Initial Considerations

Chapter 177 of the Missouri Revised Statutes generally governs the acquisition and disposition of all schoolhouse sites and other school property.  The funds used to acquire these sites are taxpayer dollars entrusted to the district.  Accordingly, the district owes the public a duty to make sure these funds are expended wisely and for purposes consistent with its educational mission.  It is equally important to ensure that Seller can convey clear title to the property, that the property may be used for its intended purpose and it is free from environmental contamination.

As a first step, we recommend that the district receive or prepare a written statement of the basic terms of the proposed transaction.  These writings are often referred to as a Term Sheet or a Letter of Intent.  Regardless of form, before you sign-off on a term sheet, make sure to clearly state that it represents only a non-binding expression of interest, and remains subject to the negotiation and execution of a definitive purchase agreement.

Term Sheet/Letter of Intent

Essential elements you should cover in a Letter of Intent are: (i) name of the parties; (ii) general description of the property; (iii) consideration at closing or the proposed purchase price; (iv) scope and duration of inspection period; (v) designation of a title company to handle the closing; (vi) proposed closing date; and (vii) any contingencies or conditions precedent to closing.

Preliminary Due Diligence and Document Requests

Following the execution of the letter of intent or following your receipt of an agreed upon term sheet, your focus should turn to a detailed inspection and investigation of the property.  Define your intended use of the property, understand the limitations of or restrictions on the property, and walk the entire property.

Start with a checklist – items you should request from the Seller include:

  • Survey;
  • Zoning information;
  • Prior Title Policy;
  • Plans, Specifications and maintenance records;
  • Phase I Environmental Audit;
  • Asbestos Report;
  • Leases;
  • Health Inspections; and
  • Permits and Licenses.

Formal Contract

Once you have completed preliminary due diligence, you will be ready to build upon the letter of intent and give shape to a definitive Purchase and Sale Agreement.  In order to be enforceable, all transactions for the purchase and sale of real estate must be in writing.  The requisite elements of a legally binding real estate contract are as follows:

  • Offer;
  • Acceptance;
  • Consideration;
  • Mutuality of obligation;
  • Competency and capacity of the contracting parties; and,
  • A Written Instrument or Contract.

Your attorney or real estate agent will be ready assist you with the standard language to include in the Purchase and Sale Agreement, but special attention should be given to the unique elements of your transaction.  For example, if access to a state highway is necessary for you to use the property, make sure to include MoDOT approval of your curb cuts as a condition to closing.

At a minimum, make sure the Contract provides that you can terminate the Contract in the event due diligence results are unacceptable to buyer in its sole discretion.

Due Diligence/Title Commitment

The most important piece of your due diligence investigation will be contained in the Title Commitment.  Make sure the title company provides you with all recorded documents referenced in the Section B-II, Title Exceptions portion of the Commitment.  In Section B-II you will find references to easements, encroachments, tax liens, lawsuits and other encumbrances on title.  These claims against the property affect your future rights and uses in the land.

Why this review is important – In one recent example, a district sought to buy unimproved lots adjoining a school’s soccer and baseball fields for use as overflow parking.  The Commitment revealed that the lots were subject to restrictive covenants allowing only residential use of the lots, parking lots were expressly prohibited.

Closing

Immediately prior to Closing, your lawyer will prepare a Closing Instruction Letter directed to the Title Company specifying the conditions precedent to the release of district funds.  Typically, the Letter specifies that all liens must be released, the Warranty Deed delivered and that the Title Company stands ready to issue a clean Title Policy to the district.

At Closing, the Title Company will deliver to the district a HUD-1 – Buyer’s Closing Statement, reflecting all pro-rations and closing charges.  Review these charges and credits carefully.  After closing it will be difficult, if not impossible, to reverse these allocations.

Once Closed, you will review a marked-up Title Commitment reflecting the terms of the to-be-issued Title Policy, as well as, a copy of the file-stamped General Warranty Deed.

For further information regarding real estate or financing matters, please contact Mr. Miller at Mickes Goldman O’Toole, LLC, (314) 878-5600, or by email ejm@mickesgoldman.com.

© 2013 Mickes Goldman O’Toole, LLC