Buying or selling commercial real estate is not the same as buying or selling a home. In most instances, the value of the property will be substantially higher than most residential transactions. Commercial real estate transactions can involve complex financing arrangements, and there may be environmental or other issues that have a significant impact on whether the deal will go through. In addition, unlike residential real estate sales, where consumer protection laws protect buyers by requiring certain disclosures, commercial real estate transactions are traditionally caveat emptor, or “buyer beware.”
Determining the Value of Commercial Property
There are a number of factors that affect the value of commercial property. The location will always have an impact on value. Other variables include the income potential of the real estate, including any established current or future income stream, as well as the overall health of the real estate market. To protect your interests, you want to retain a professional real estate valuation expert.
Title and Survey
As the new owner, you want to ensure that you are receiving title to the property free and clear of any exceptions that may adversely affect your use of the property. Such exceptions include restrictions and agreements that limit your use of the property as well as easements that give others the right to use the property. It is important to have experienced legal counsel review title to the property and the survey in order to properly advise you with respect to any exceptions that may affect the title to the property.
Land Use Approvals
It is essential to have a clear understanding of whether or not your intended use of the property will require the approval of any municipal or county planning boards or any state agencies. If any approvals are required it is essential that your purchase agreement have a well drafted approvals contingency that will provide you the time to obtain the required approvals and the ability to terminate the agreement if you are unable to do so.
The Impact of a Commercial Real Estate Purchase on Your Cash Flow or Liquidity
Make certain you have a clear sense of how the commercial real estate transaction will affect your liquidity or cash flow. If you have to put significant funds down, you may not have the liquidity you need to respond to market fluctuations. If some or all of the revenue from the property is in the form of rents paid to you, you may experience cash flow challenges if tenants fall behind. You may also incur legal expenses to protect your rights with tenants. If cash flow becomes critical, you may be unable to make payments and face foreclosure proceedings.
Who Assumes Liability for Any Violation of Law or Regulation?
Before you enter into a purchase agreement, you need to identify any potential legal issues, including zoning violations or environmental problems. If you need to rezone the property to use it, will you run into significant resistance, or will there be substantial costs to do so? What is the nature of any environmental violation? Does it require a cleanup? How long will that take? Will it have a significant impact on the profitability of your venture?
Contact Our Office
At Del Duca Lewis & Berr, our lawyers have more than five decades of commercial real estate and business law experience, representing clients throughout southern New Jersey and the greater Philadelphia area. In recognition of the high standards by which we operate our practice, attorney Damien Del Duca has been named a New Jersey Super Lawyer.
To schedule an appointment to discuss your real estate or business law needs, contact us online, or call our office at 856-427-4200.