Law and Practice
1.1 Main Substantive Skills
Real estate law requires not only an understanding of buying and selling real estate, closing processes, real estate title, leasing and finance, but also experience in a variety of other areas that are important to many real estate deals and specific industries. In particular, law firms must have professionals who are familiar with environmental laws, land use and zoning matters, development and construction, joint ventures, complex financing structures, restructurings and workouts. In addition to good analytical, organizational and negotiating skills, effective real estate lawyers must have an understanding of their client's industry and business objectives.
Several current trends have had an impact on the skills required by real estate lawyers, including the popularity of large mixed-use projects and the increasing use of tax credits and other complex financing structures for large real estate projects. Many traditional real estate projects involve primarily the acquisition, sale or development of a single building, parcel or contiguous parcels of real estate by one owner, with financing from a single lender or lender group. By contrast, large mixed-use projects often involve the development of large areas and sometimes multiple blocks of non-contiguous real estate by multiple owners with various lenders and financing structures. These projects frequently have complex land use and entitlement issues, and a variety of ownership structures that require greater experience with corporate and business laws. Likewise, the increased use of tax credits requires experience with tax law and the structuring of these credits and project financing in a manner compatible with the business interests of the owners, developers and lenders.
1.2 Most Significant Trends
The most significant trend in local real estate markets continues to be a focus on interest rates, which affects all sectors of the real estate market. The Mississippi market for real estate development, as well as acquisitions and sales appears to be very healthy
1.3 Impact of New US Tax Law Changes
The 2017 Federal Tax Cuts and Jobs Act was generally considered to be favorable to commercial real estate investment and ownership. The Act added certain deductions for income from pass-through entities, increased the ability to currently expense certain items and retained 1031 exchanges for real property. Many investors are looking at transactions within the newly created Opportunity Zones. A number of Opportunity Zone funds have been created, so there should be capital available in the near term for projects that meet Opportunity Zone guidelines.
Sale and Purchase
2.1 Ownership Structures
Any legal business entity may own land in Mississippi, including corporations, partnerships and limited liability companies (LLCs). However, most of the transactions in recent years have utilized limited liability companies. An LLC provides the limited liability of a corporation or limited partner in a limited partnership, but allows the members tremendous freedom to structure transactions with varying tax and cash distributions scenarios. The Revised Mississippi Limited Liability Company Act provides a modern and flexible framework that generally follows many of the provisions of Delaware LLC laws.
2.2 Important Jurisdictional Requirements
There are no specific jurisdictional requirements to transfer title to real property other than the general requirements for a lawful and proper transfer of title (eg, recording requirements). There are no specific laws or regulations applicable to one specific type of real estate as opposed to other types.
2.3 Effecting Lawful and Proper Transfer of Title
All conveyances of real property must be in writing, signed and delivered by the transferor. In order to provide constructive notice of delivery, a deed must be acknowledged and filed for record in the office of the Chancery Clerk of the county where the land is located. Real property may be conveyed by general warranty deed, special warranty deed or a quitclaim deed. In Mississippi, there is no transfer tax; the recording of the deed only requires the payment of nominal recording fees.
2.4 Real Estate Due Diligence
Buyers usually hire outside firms for certain aspects of their due diligence. The extent and type of due diligence by the buyer can vary widely due to the size of the transaction and the perceived risk for a particular category of property (eg, industrial properties vs undeveloped agricultural land). An environmental/geotechnical engineer would normally be engaged to conduct appropriate reviews and testing of the property, and a civil engineer is hired to handle the survey and any access issues. If the property is vacant land and the buyer plans to develop the land into a subdivision or other large-scale development, the civil engineer will be much more involved in the due diligence phase, to make sure the property can be developed in such manner. Lawyers are hired to handle the ordering and review of the title abstract and the preparation of the title commitment. Typically, the lawyer representing the buyer will oversee all aspects of the due diligence to make sure the land and improvements are in suitable condition and that the property can be operated and/or developed as proposed by the buyer.
2.5 Typical Representations and Warranties for Purchase and Sale Agreements
There are no unique representations under state or local law. In addition to customary fundamental representations (e.g., authority, enforceability, title), typical representations and warranties requested of a seller include:
there are no judgments or litigation against the property or the seller; the seller is not subject to a bankruptcy proceeding, is not insolvent, and there have been no attachments, executions or assignments of the property for the benefit of creditors; the improvements are in good order and working condition; the property complies with applicable law; the property is properly zoned for its current use; there are no liens or recent construction on the property for which the contractor has not been paid; all permits and licenses have been obtained; access is current and insurable; the seller has no knowledge of any environmental hazards present on the property; any rent rolls or third-party reports are true and correct; and no leases or rights of first refusal have been granted, except as disclosed to the buyer. Most purchase and sale agreements provide for a claim for damages and indemnification if the buyer discovers after closing that the seller misrepresented an aspect of the property. The term of the representations and warranties is negotiated in the purchase and sale agreement, and normally runs between nine months and two years. The seller will often negotiate a cap on the amount of liability from a breached representation, which is usually some percentage of the purchase price. It is also common in Mississippi for the seller to negotiate a deductible that has to be reached before a claim can be filed for an indemnification.
2.6 Important Areas of Law for Foreign Investors
In connection with any sale exceeding USD100,000 and involving a nonresident seller or an entity not qualified to do business in Mississippi, 5% of the amount realized by the seller must be withheld and paid to the Mississippi Department of Revenue to ensure payment of income tax on any income realized from the transaction.
2.7 Soil Pollution and Environmental Contamination
A buyer of a real estate asset may be responsible for soil pollution or environmental contamination of a property even if it did not cause the pollution or contamination. The owner of the property is jointly and severally liable for environmental clean-up with other potentially responsible parties (PRP). If a buyer takes title to property, it is the owner and therefore a PRP. However, under federal and state law, a buyer may establish any of the following three 'defenses' to being a PRP, and must establish and meet all requirements to maintain the defenses against liability:
innocent landowner defense; bona fide purchaser defense; and the contiguous landowner defense. An innocent landowner is a person who conducted necessary and appropriate environmental due diligence but later discovers an environmental issue at the site. A bona fide purchaser is a person who purchases the property clearly knowing that environmental conditions exist on the property. A contiguous landowner is a person who purchases the property where the environmental conditions exist on an adjoining property and has moved or will move onto the purchased property.
All three defenses require 'all appropriate inquiry' regarding the environmental condition of the property prior to closing. The requirements to establish a defense are extensive and fact-intensive. Since the failure to comply with even one requirement could prevent a buyer from using a defense, buyers should engage competent environmental counsel if a property has suspected environmental issues.
2.8 Permitted Uses of Real Estate Under Zoning and Planning Law
The zoning ordinances for the applicable jurisdiction will include the permitted uses for the parcel of real estate located in each zone. If requested, local authorities will generally provide written evidence of the applicable zoning classification.
It is possible to enter into specific development agreements to facilitate development projects in Mississippi. These types of agreements are found in larger, more complex transactions. Agreements with governmental authorities can relate to economic incentives such as Tax Increment Financing (TIF), infrastructure improvements such as access roads and a myriad of other areas. The Mississippi Development Authority oversees many state-wide economic development programs that could be applicable to a project. There are also other types...