Traps for Sellers of Commercial Real Estate in Clark County

Three common “traps” that can ensnare even the most sophisticated sellers

By Director and Attorney Chris Walther

Sellers of commercial real estate in Clark County are often confronted with myriad issues when entering into a new sale transaction. While there is no substitute for having an experienced Nevada commercial real estate attorney guide a seller through these issues, below are three common “traps” that can ensnare even the most sophisticated sellers:

1. Nevada’s Real Property Transfer Tax – With some exceptions, Nevada imposes a transfer tax on each deed conveying real property with a value of more than $100.  The transfer tax rate in Clark County is currently $2.55 for each $500 in property value (or fraction thereof).  The transfer tax is paid concurrently with the deed being submitted to the Clark County Recorder for public recording.  Which party pays the transfer tax is entirely negotiable between a seller and a buyer, and while the historic custom in Nevada was for the seller to pay this tax in full, this tax is now frequently split equally between the buyer and seller.  Accordingly, a seller will want to consider the allocation of transfer taxes between the seller and the buyer as part of the broader purchase price negotiations given that the transfer taxes will often constitute a significant line-item on the final escrow closing statement.

2. Arbitration – Some sellers prefer to exclusively arbitrate disputes arising from commercial real estate transactions rather than litigating those disputes in Nevada’s state and federal courts. Nevada has a statute that generally provides that an agreement containing a provision requiring any party to that agreement to exclusively arbitrate any dispute arising from that agreement must include language specifically authorizing, and by which the party affirmatively agrees to, that exclusive arbitration provision.  Even though the Nevada Supreme Court has recently concluded that this Nevada statute is preempted by the Federal Arbitration Act with respect to (and is therefore inapplicable to) transactions involving “interstate commerce,” a cautious seller still might want to ensure that an exclusive arbitration provision in the seller’s purchase and sale agreement contains the aforementioned statutory language in light of the inherent uncertainty in trying to determine whether a particular transaction involves “interstate commerce.”

3. Liquidated Damages – A purchase and sale agreement will often contain a “liquidated damages” provision entitling the seller to receive a specified amount from the buyer—usually some or all of the funds deposited into escrow by the buyer in advance of the closing of the sale transaction—in the event that the closing does not occur due to the buyer’s failure to perform in accordance with the agreement.  While liquidated damages provisions in favor of sellers are common in Nevada and presumed to be valid under Nevada law absent a challenge by the buyer, a seller will nevertheless want to consider whether the liquidated damages that the seller is entitled to receive from the buyer are disproportionate to the actual damages that the seller would sustain in the event that the buyer fails to perform such that the liquidated damages could potentially constitute an unenforceable penalty under Nevada law.

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