I was asked this morning how closing costs are typically divided between Buyers and Sellers in an Illinois Commercial/Industrial real estate transaction. This has come up before, so my response is posted below for others who may be interested:
* * * * *
In Illinois commercial/industrial real estate transactions, allocation of "closing costs" is always subject to negotiation, but as a general proposition "the customary practice" for "usual" closing cost items that come to mind is as follows:
SELLER PAYS for:
1. Title Policy with extended coverage (but Buyer pays for most other endorsements)
2. ALTA Survey (although if Seller has a fairly recent Survey and the improvements have not changed, often the Seller will provide what it has and the Buyer will be obligated to pay for updates).
3. UCC searches on any equipment or other personal property included in sale (if applicable)
4. State and County transfer taxes. (by State law)
5. All property use expenses applicable to periods PRIOR to Closing.
6. Seller's title clearance expenses (i.e. pay-off and release of mortgage and other liens)
[BASICALLY, the Seller pays to establish WHAT it owns.]
BUYER PAYS for:
1. All Environmental due diligence (although sometimes contract will provide for reimbursement of Phase 1 audit if undisclosed contamination is found that results in transaction being terminated).
2. Geo-technical studies (i.e. subsurface environmental, compaction, etc.)
3. All title endorsements other than extended coverage, and any lender's title insurance policy.
4. Municipal transfer taxes (unless provided otherwise by ordinance).
5. Special survey requirements (such as topographical contours, etc.)
6. All Property inspection expenses
7. All property use expenses applicable from and after Closing.
8. Buyer's financing expenses (including, without limitation, recording mortgage and assignment of rents, etc. and also cost of recording the Deed)
[BASICALLY, the Buyer pays for all matters related to its due diligence investigation to verify that once it owns the property it can be used in a way that is satisfactory to Buyer.]
1. Closing Escrow (except Buyer pays for lender's escrow)
2. "New York Style" closing fee
If you are concerned about some other specific cost or expense item, do not hesitate to contact me. As mentioned above, while this division is more or less "customary", in any given transaction the actual negotiated allocation may be different.
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