When purchasing an apartment building, you are entering into territory most people never experience. The context is the legal arena in which the contract is king, and little or no consumer protection provisions exist. It is important that your attorney include several key provisions in the contract to protect your interests, because a dispute after the purchase will be governed by the contract language.

One of the most critical provisions is a financing contingency. You should know before making the offer how much cash you are going to invest in the property, and the balance you will need to finance. You should have already analyzed the effects of different interest rates and amortization periods before making the offer, and have some idea of whether or not those terms are available in the marketplace. Make closing the sale contingent upon being able to obtain financing with terms that are comfortable.

Alternatively, you may want to include a clause for seller financing, should you be stretching beyond what the commercial lenders in your area consider an acceptable loan-to-value ratio, or if the financing you thought you could obtain is not available once you've completed your due diligence.

You should require several due diligence clauses in the lease, which will permit you to analyze the statements made by the seller that have led you to believe the property is worth what you have offered.

Important due diligence clauses include: (1) seller certifying and providing rent roll and lease contracts for your verification; (2) acceptability of the physical condition of the property; (3) verifiable operating statement detailing income and expenses; (4) copies of all outstanding service contracts; and, (5) seller certification of compliance with local laws such as zoning, occupancy permits, and compliance with building codes.

You can be certain the lender will want a hand in every one of these details, and will want verification of the various items. If the lender gets word later that any of these items were inaccurately presented to them by you, there is a chance that the lender will call the mortgage in default and demand immediate repayment of the loan. It is critical to do the due diligence.

As part of your due diligence, you may want to obtain tenant estoppel letters for every occupied apartment. These letters are sent to the tenants detailing the terms of the lease as you understand them from the records provided by the seller. The tenant will have a fixed amount of time in which to return, signed, a verification of the lease terms; or, conversely, a refutation of the stated terms. This will bring out of the weeds any problems with the leases, or the apartments, if the tenants are at all savvy and sign the letter but modify it.

Be sure whatever you put in the tenant estoppel letter is as accurate as you can. Those letters can be successfully used by the tenants as proof that you modified the lease terms.

Additionally, it is probable the lender will want copies of the tenant estoppel letters, as well as correspondence from the local government certifying that there are no problem or conflicts with local laws. Building code violations are generally reparable within a reasonable length of time, but make sure the seller pays to have the work done. Zoning violations are much more difficult to correct, and you should consult with your attorney and the government officials responsible for enforcement before taking on that problem.

Another seldom-used but important clause is that of insurability. Most companies that insure against risks in investment properties will conduct their own, independent inspection of the property prior to issuing an insurance policy. These inspections are usually at the insured's (your) expense. Being able to obtain insurance should not be assumed, but you can rest assured any lender will require it. If the insurance company requires significant modifications be made to the property before it can be insured, then make sure you can back out of the contract if the seller is not willing to make those modifications before closing.