Purchase/Sale of Business Real Estate

Any real estate transaction is complex, but there are far more challenges when it involves a commercial property. Here, the buyer and seller are more sophisticated parties, and there are far more issues than in a residential real estate transaction. Further, the deal may have additional wrinkles that the buyer and seller must negotiate, making it even more crucial to have a commercial real estate lawyer representing you.

Before you agree to a commercial real estate transaction, you need to know what to expect. Although you cannot control contingencies or unexpected occurrences, going into the deal with as much knowledge as possible is better. A commercial real estate lawyer can educate you about the transaction process and help look out for your legal rights at every step. They can assist you in negotiating the deal and handle any difficulties that arise during the transaction.

Attorneys are skilled at conducting thorough research and investigation to uncover potential issues or red flags associated with property. They will review the title, contracts, leases, permits, and other relevant documents to ensure that everything is in order and that there are no hidden surprises.

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Negotiating the Contract

A commercial real estate transaction involves a sales contract between the buyer and seller. In a commercial real estate deal, this is a lengthy document with numerous appendices and addendums. This contract will control every aspect of the agreement and impose obligations on the buyer and seller. At the same time, the contract needs to protect the rights of both parties.

It is impossible to overstate the significance of the sales contract. Once the parties sign, it is a binding legal document that will go into effect before the deal closes. Thus, both parties will have obligations before the completion of the contract.

If any disputes between the buyer and seller need litigation, the court will first go to the exact language of the contract. The document reflects the agreement between the parties, and the court generally only considers outside evidence if it cannot determine the meaning of the contract from looking at the document itself.

Thus, it is crucial to ensure that the contract gets intricately negotiated and reviewed before signing it. Whether you are the buyer or seller, you may face significant financial consequences if you fail to comply with the contract terms.

A commercial real estate attorney can negotiate the contract and review the terms of any document before you sign it. They can recommend areas where you may need to seek changes, and they can draft language for the contract. Your commercial real estate lawyer may directly negotiate on your behalf when necessary.

Lease to Own and Purchase Options

Commercial real estate transactions may not be straightforward sales of property. One typical arrangement is when one rents a property with the option to purchase it. Here, the lease agreement also includes the terms of any potential sale, including the timing and the purchase price. Buyers and sellers must carefully negotiate these types of agreements. The buyer wants to ensure they have the right to purchase the property in a manner that is advantageous to them. At the same time, the seller also wants protection while they lock in a potential sales price in the future.

Financing Issues

Commercial real estate transaction financing is different from what you find when an individual is applying for a home mortgage. Financing is far more challenging to obtain because the high value of the property can make lenders more cautious. In addition, commercial real estate mortgages may have different terms, including a shorter repayment period. Buyers have more flexibility in negotiating the terms of a commercial real estate mortgage with the lender due to the market competition.

Buyers should have a commercial real estate lawyer represent them when negotiating a mortgage. At a minimum, the lawyer should review the mortgage’s legal documents to ensure the buyer has the maximum protection possible in the contract.

The transaction may have issues when the buyer has difficulty obtaining mortgage financing, and the sales contract usually specifies what will happen in this situation. Usually, the buyer can walk away from the deal if they cannot obtain financing by a specific deadline without fear of losing their earnest money deposit. However, the contract may have different terms, or the seller may believe the buyer did not make an adequate effort to obtain financing, and they seek to keep the earnest money.

Land Use Issues

When someone purchases a commercial real estate property, they intend to use it for business purposes or to generate income. Thus, the buyer must use the property in the intended manner. Numerous local laws may determine how to use a particular parcel of property. Specifically, zoning laws can impose restrictions or specify how to use a property within an area. Similarly, the property may be in a historic location, and there may be other restrictions on development or changing the property’s appearance. It is essential to know both the general zoning laws and any history that this particular property has had with land use issues.

Further, environmental laws may impose other restrictions on how the buyer uses the property. The buyer must also know whether the seller has had any issues with environmental compliance because the buyer may inherit these problems when they complete the purchase.

Finally, there may be other restrictive covenants on the use of the property. It is up to the seller to fully disclose these to the buyer and for the purchaser to learn of these issues before the deal closes.

Due Diligence

In many commercial real estate transactions, the buyer will have the right to conduct their own due diligence before the sale closes. They are looking for any outstanding issues that can make the property worth less or affect whether and how they use it. Due diligence is about more than just “kicking the tires;” the prospective buyer needs to conduct an extensive review to learn more about the property.

Due diligence involves reviewing the following:

• Covenants, conditions, restrictions, reservations, and easements for the property
• Geological and topographical surveys
• Any potential environmental issues with the property (the buyer can inherit certain legal obligations, such as the requirement to contribute to cleanup costs under CERCLA)
• Copies of any leases or other contracts involving the property
• An accounting of all rents due and received or any other financial issues involving the property
• Records for any easements or other rights of use that others may have (the buyer should certainly conduct an extensive visual inspection of the property to determine whether others may be using it
• A close inspection of the land or building to determine whether there are any defects
• The most recent title policy or title commitment on the property in the possession or control of the seller

If the buyer uncovers any issues in due diligence, the contract may allow them to walk away from the deal entirely, or they can renegotiate the terms of the transactions. However, there are often disputes about the impact of potential issues and whether they will allow the buyer to exit the deal.

Potential Commercial Real Estate Litigation

Although litigation is not a predetermined outcome in any commercial real estate transaction, it is certainly possible. Since there are more variables in these deals, there is a higher chance that you may be in a dispute. Potential areas of disagreement include:

• Contract disputes: Real estate transactions involve the exchange of large sums of money and complicated legal documents. Disagreements over the terms and conditions of the contract can lead to disputes.
• Title disputes: Clear and marketable title is essential for any real estate transaction. However, title disputes can arise when competing claims or liens are on the property.
• Boundary disputes: Boundary disputes often arise between neighboring property owners. These disputes may involve disagreements over property lines, encroachments, easement rights, or trespassing.
• Construction defects: Construction defects can be a significant source of dispute in real estate transactions, especially in newly built properties. Issues such as faulty builds, design defects, or substandard materials can significantly impact a property’s value and habitability.

Even though you are acting to complete the transaction, you must always prepare for the possibility of litigation. You should hire a commercial real estate lawyer to assist with the transaction who can anticipate any problem areas that may lead to a lawsuit in the future. They can negotiate additional protections into the contract that can help safeguard your interests.

If you are in any dispute, a commercial real estate lawyer can help you resolve it, or they can represent you in any litigation. However, you need help from a commercial real estate attorney early in the process so they can be at their most effective. They can negotiate on your behalf to ensure you avoid a lawsuit entirely.

Why You Need a Commercial Real Estate Lawyer for Your Transaction

Whether you are a buyer or a seller, a commercial real estate transaction involves a large amount of money. If you are a buyer, this may be your place of business for now and in the future. Alternatively, you may purchase a property that will produce income for you. As the seller, you want to ensure that the deal goes smoothly so you can receive the contract’s proceeds.

You can never be too careful when engaging in a commercial real estate transaction. You should always hire someone with specific experience with these transactions and the knowledge of the law you need to protect your interests.

A commercial real estate attorney can wear many hats during your deal. Specifically, they can do the following:

• Draft or review language in the contract to protect your interests and ensure that the agreement says what you want
• Negotiate the terms of the financing or dealing with lenders
• Explain any applicable regulations, such as zoning and environmental laws, and ensure you comply with them
• Advise you when you are in dispute about the transaction, helping you strategize and negotiate with the other party’s attorney
• Represent you in court if you have to litigate your case

Hiring a commercial real estate lawyer makes sense, especially given the stakes of the transaction. Not knowing your legal rights or obtaining the maximum amount of legal protection can cost you far more money than you would spend on your commercial real estate lawyer’s assistance. Think of hiring a commercial real estate attorney as an investment you make in the ultimate success of the deal. You should contact a commercial real estate lawyer early in the sales process so they can give you the help you need most efficiently and effectively.

A commercial real estate lawyer will provide you with the experience, guidance, and protection you need to handle any complications you may encounter during the transaction. Whether conducting due diligence, negotiating terms, or providing legal advice, a lawyer will safeguard your interests throughout the process. Before embarking on your next commercial real estate deal, ensure you have a skilled attorney.

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