Buying Commercial Real Estate in Louisiana: Legal Terms & Procedures
You may have often heard that Louisiana law differs significantly from the common law systems which apply in the other 49 states. When it comes to commercial real estate transactions, that is somewhat true, but what you may find is that many of the differences amount more to nomenclature and form, rather than the substance of a transaction. Below, we highlight some Louisiana-specific terminology, and discuss the similarities and differences between similar terms that you may be more accustomed to seeing when transacting in common law jurisdictions.
Earnest Money vs. Security Deposits
It is typical for commercial real estate buyers to provide “earnest money” as a deposit in commercial real estate purchase agreements in common law states. This practice is also common in Louisiana. However, Louisiana Civil Code article 2624 provides for special treatment of deposits in Louisiana purchase agreements where a buyer stipulates that the deposit given is “earnest money”. Due to the legal implications provided by the Louisiana Civil Code with respect to labeling deposits as “earnest money”, the common practice in Louisiana real estate purchase agreements is to instead simply refer to any such amount given solely as a “deposit”. Doing so insures that the terms of the purchase agreement govern the application of the deposit versus the provisions of the Louisiana Civil Code kicking in and leading to unintended legal consequences that the parties did not anticipate.
Much of the legality surrounding the way land and property are passed down is unique to Louisiana. This is why it is always in your best interest to hire a Louisiana lawyer when it comes to Louisiana Law.
The Closing Process and Closing Costs
Experienced buyers and sellers of real estate understand that customs regarding the responsibility for various components of closing costs often differ from state to state. Many states have independent title offices that act as a neutral closing agent to facilitate the closing of a real estate sale and purchase.
Louisiana differs in that it is customary for buyers’ attorneys to facilitate real estate closings. Further, in Louisiana buyers should be aware that they are typically responsible for the costs to obtain surveys, costs to re-subdivided property (if necessary), and the premiums for owner’s (and if applicable, lender’s) title insurance. However, you should note that sellers typically remain responsible for any title curative costs which may be needed to resolve any existing title defects prior to closing.
The Deed vs. the Cash Sale
Most common law jurisdictions consummate the sale of real property (immovable property, as it is referred to in Louisiana) by execution of a deed. Many states provide various forms of deeds—a general warranty deed, statutory warranty deed, or a special warranty deed, to name a few—the use of which implicates various warranties regarding the seller’s title to such property, and consequently any remedies the buyer may enforce in the event of a title defect or failure of title. In Louisiana, the sale of immovable property is instead consummated by execution of a cash sale, which transfers title of the applicable property from the seller to the buyer. Rather than having different names for various forms of cash sales, any seller warranties regarding title are housed within the sale document.
In Louisiana, sellers may provide full warranty of title, limited warranty of title, or no title warranties at all. Depending on the language of the cash sale regarding any such warranties, the liability for sellers and the remedies available to buyers, can significantly differ. Accordingly, it is imperative that one understands the implications of any warranties provided or excluded in a Louisiana cash sale.
Easements and Servitudes
In Louisiana, the term “servitude” is used rather than “easement”. Common law easements that run with the land are known as predial servitudes in Louisiana.
Erik Piazza
Partner at Phelps Dunbar LLC
Business, Real Estate, & Construction
225-376-0291