Commercial Real Estate & the Law
Commercial real estate concerns real property with commercial, rather than residential, purposes. It is most often owned by business owners or investors who then sometimes lease space on the property to commercial tenants. Commercial properties include retail buildings, warehouses, factories, apartment complexes, office buildings, and more.
Commercial Real Estate Transactions
Buying and selling commercial real estate can be much more complicated than buying or selling a home. Consulting professionals like real estate lawyers, real estate brokers or agents, and business consultants in the process of buying or selling commercial property can be helpful. Commercial real estate brokers, agents, and other knowledgeable professionals can help evaluate the market, determine how much a buyer can afford to pay or a seller can manage to sell for, and help negotiate a deal. Real estate lawyers can also help negotiate and draft purchase and sale agreements, and they can offer legal advice about a particular transaction, which brokers and agents cannot do. Even people experienced in buying and selling commercial real estate often work with more than one professional during a transaction.
Buyers of commercial real estate will be particularly focused on finding a property that fits their needs, conducting due diligence and inspections of the property, and ensuring that they have clear title to the property upon closing the transaction. Sellers of commercial real estate will most likely spend their time analyzing the expenses involved in selling their property compared to the potential purchase price. If they plan to pursue a Section 1031 exchange, a maneuver that allows sellers to reinvest their profits and defer capital gains tax, they will need to make sure that they are following the proper procedures.
Those leasing rather than purchasing commercial property should still take great care to evaluate their needs and capacity before signing a lease. Commercial leases tend to be for longer periods of time than residential leases, and commercial tenants are not generally afforded the same legal protections as residential tenants because they are considered sophisticated parties. Therefore, it is important to exercise due diligence and negotiate beneficial lease terms before signing.
Insurance for Commercial Real Estate
There are many types of insurance to consider for commercial real estate. Commercial property insurance can help owners and tenants protect against damage to their property and items on their property, like equipment, caused by events like a fire or vandalism. Liability for personal injury and property damage arising out of normal business operations can be covered by general liability insurance. These are just a few of the many different kinds of insurance suitable for commercial property or business conducted there.
Title insurance can help protect a buyer and any lenders in a commercial real estate transaction. A title report, drafted in anticipation of issuing title insurance, can help a buyer or lender identify any potential issues with the title of the property and decide whether to rectify those issues or walk away from the deal. Title insurance is not a requirement of all commercial real estate transactions, but it is usually a good idea to protect buyers’ and lenders’ interests.
Foreclosures in Commercial Real Estate
Unfortunately, there might be a time when a commercial property owner faces the possibility of foreclosure. Foreclosures most often occur due to missed mortgage payments, but lenders may have the option to foreclose for another type of loan violation, as outlined in the loan documents or state law. Lenders are usually required to provide borrowers with some kind of notice before foreclosing, and borrowers are sometimes able to cure the default and reinstate the loan.
