Operational Considerations – Purchasing Real Estate – Indenture Review

David A. Zobel

By David A. Zobel

Written by David A. Zobel  with contribution from Jeffrey R. Schmitt

Part 6 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Once you’ve established your legal entity, the next step will be purchase the real estate you wish to lease (or invest in). The type of real estate which will be appropriate for your business will vary depending on a number of factors, including your location, level of investment, and potential tenant base. Not surprisingly, thorough research, inspections, and planning are critical to ensuring success. In this series of posts, we’re outlining several important issues to consider when purchasing a property: title insurance, indenture review, and ensuring appropriate loan documentation.

Indenture Review

Most title searches will disclose that the property you are purchasing is subject to certain local rules and agreements between neighbors. The terms used for these neighbor agreements will vary depending on the nature of the property. Condominiums are subject to declarations and by-laws while houses are typically subject to neighborhood or subdivision indentures. (For simplicity, we’ll refer to all of these agreements as indentures.)

It is critically important that you review the indentures governing the property you seek to purchase before you close on the property. Most indentures contain some level of restrictions on real estate leasing and short-term rentals. Those restrictions can be purely administrative, including requirements that all leases be submitted and approved by the condominium board or neighborhood trustees. However, others can mandate lease durations and even bar certain types of rental arrangements, like short-term rentals made popular by AirBnB and VRBO. Some municipalities may also require permitting and fees for certain types of leasing.

Failing to consider or ignoring indenture restrictions can result in costly litigation and even the loss of the property itself. Accordingly, we highly recommend reviewing all governing indentures before closing to ensure the desired property can be used in the manner to which you are planning.

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This post is part of a series designed to help people understand and navigate the various pitfalls and legal considerations of real estate leasing. If you would like to learn about navigating indenture restrictions, one of our experienced real estate attorneys would love to meet with you.

In the next post, we’ll outline a few legal considerations when you seek a loan to purchase real estate. If you would like to go back and read our earlier posts, those links are set forth below.

Introduction
Part 1: Do I Need a Legal Entity?
Part 2: What Type of Legal Entities are Available?
Part 3: Tax Treatment Considerations When Selecting Your Entity
Part 4: Your Entity’s Governing Documents
Part 5: Operational Considerations – Purchasing Real Estate – Title Insurance
Part 6: Operational Considerations – Purchasing Real Estate – Indenture Review
Part 7: Operational Considerations – Purchasing Real Estate – Loan Documentation
Part 8: Observing Corporate Formalities
Part 9: Insurance Considerations
Part 10: Drafting the Right Lease Agreement
Part 11: Litigation Considerations
Part 12: Should I Employ an Attorney to Assist my Real Estate Business?

Posted by Attorney David A. Zobel with contribution by Jeffrey R. Schmitt. Zobel assists clients with business and litigation matters, primarily in the areas of contract, banking, insurance, and real estate issues.  He is also a litigator for the firm’s commercial, probate, and insurance-related practices, handling general litigation, trust and probate litigation, title defense, surety defense, and professional malpractice disputes. Schmitt represents businesses and individuals in commercial litigation matters including banking and finance, real estate, condo and homeowners associations, professional liability defense, title disputes, transportation, and pension and retirement plans.


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