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| Securing your real estate investments |
Why You Need a Commercial Real Estate Lawyer: 5 Key Benefits
A number of legal elements are involved in buying, selling, or leasing a commercial property. Handling them properly is essential to avoid losing money. A commercial property lawyer helps manage the risks involved in commercial property transactions.
What does a commercial real estate lawyer do?
Closing a commercial real estate transaction is a complex, multi-step process that can take months. With so much money at stake, you want to minimize any risk - as a buyer or seller - that can crop up during the deal. A commercial real estate lawyer protects your interests and helps you avoid a bad investment.
Here are examples of services provided by a commercial lawyer.
Negotiating and executing commercial property purchase agreements
As purchase and sale agreements define the buyer's and seller's rights, obligations, and liabilities, they must fully cover the agreement reached between the two parties.
The complexity of contract documentation requires an attorney's sharp and practiced eyes to identify potential liabilities and pitfalls that can harm your assets. Your attorney will review all the contract details, saving you time, money, and stress should a conflict arise.
Evaluating matters and conditions regarding the property during the due diligence period
Over the 30-60 day timeframe for due diligence, a commercial property lawyer will carry out the following critical activities:
- Review the current title insurance commitment, the seller's mortgages, vesting deeds, liens, declarations, easements, and environment deed notices, among other documents and endorsements required by the purchaser or mortgage lender.
- Examine the survey indicating that the property can be accessed directly from a public road, the building, the number of parking spaces, and other information in the title commitment.
- Evaluate information related to the property's environmental condition to understand whether there have been any notices of violations from any governmental authority.
- Review financial information related to the property, including its operating costs, real estate taxes, copies of lease agreements, utility bills, security deposits, and tenants' payment histories.
- Review land use applications, building permits, certificates of occupancy, fire inspection certifications, and local zoning ordinances to confirm that uses of the property are allowed in the zoning district.
- Review the service contracts for building maintenance, lawn care, snow removal, and other property services to know if the purchaser can terminate the contracts or continue with them.
Handling escrow issues
A commercial escrow account can be complex due to the involvement of multiple parties having separate interests in the transaction. Any issue with the escrow account can lead to the transaction being delayed or canceled. A commercial real estate development lawyer helps with all aspects of an escrow account.
The attorney can assist in drafting and finalizing an escrow agreement. They can also assist with account set-up and negotiation, and if an issue arises, review your case and guide you on the step to take, such as filing a lawsuit or employing a remedy that does not involve litigation. If the matter does go to court, they will represent you in court proceedings.
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| Navigating the complex world of commercial real estate |
Facilitate 1031 tax-deferred exchanges.
A 1031 exchange or 'like-kind exchange' allows real estate investors to exchange one real property investment for another in a tax-deferred manner.
While these exchanges are not exactly complicated, they do have many moving parts and rules that are best handled by a commercial property lawyer to ensure that your investment grows tax-deferred.
It's also worth noting that while some 1031 exchanges are straightforward, others are complicated, requiring advanced strategies and techniques, including improvement exchanges; reverse and forward exchanges; Simultaneous, delayed, and reverse exchanges; Drop and Swap, Swap and Drop, or Split-Off; and a combination of strategies.
How do you benefit from commercial real estate lawyer services?
While you aren't required to work with a commercial lease lawyer, you will benefit by using their service. You never know what can go wrong during a deal.
If you're venturing into commercial real estate for the first time, the experience can feel like walking on thin ice. Even businesses and developers use commercial real estate lawyers to execute deals and handle litigation risk without hassles.
Here's why commercial lawyers have come to play a crucial role in commercial real estate transactions:
1. They secure your interests at every step of the deal
Legal protection is the number one reason to hire a commercial real estate attorney.
The professional has specialized knowledge of:
- buying and selling buildings,
- leasing retail spaces,
- zoning issues,
- managing real estate development,
- and other aspects of a commercial transaction.
Compared to closing a residential real estate deal, commercial property involves more issues and negotiations that extend deal closing time. There is also no one-size-fits-all structure for negotiating different types of commercial real estate. You can sail through to closing more easily with an experienced commercial lawyer at your side.
2. They take care of all the paperwork on your behalf
The sheer amount of paperwork involved in a commercial real estate transaction can be overwhelming if you work solo or have a small in-house team. Issues with paperwork and due diligence can manifest into major problems later on.
Consider whether you have the time to review paperwork and the confidence to fill in documents accurately and file them within the deadline.
By engaging a commercial real estate corporate lawyer, your role will be limited to signing documents only.
Your attorney will fill you in with any details you must know and answer your questions to help you stay on top of contracts and other documents.
3. They perform legal due diligence
As a buyer, due diligence enables you to uncover as much information about the property as possible before you're obligated to purchase it. There's a possibility that you may unearth information the seller didn't want you to know or wasn't aware of. For this reason, you may want to perform due diligence before signing the purchase contract rather than afterward.
A commercial real estate lawyer will prepare a detailed due diligence checklist and make it available in the early stages of the transaction lifecycle.
The most important aspect of legal due diligence is the title examination, which involves reviewing Schedules A and B of the title commitment. Your attorney will check if the seller is the named owner of the property, whether there are any third parties with rights in the property which are unknown to you, or if any liens on the property that exceed the purchase price.
4. They negotiate on your behalf
Commercial real estate transactions are heavily negotiated, and outcomes hinge on the negotiating skills of involved parties. To have a stronger hand in the negotiations, you need to be a skilled negotiator and understand the legal aspects of a commercial property transaction.
Unlike a residential real estate transaction, which involves negotiations between two people, commercial deals are dialogues between two legal entities.
You may be an excellent investor, but negotiating may not be your forte. And while you may have a surface-level understanding of commercial real estate law, it may be insufficient to negotiate effectively with buyers/sellers and their attorneys. Experienced legal counsel can put you at an advantage from the get-go.
5. They help keep pace with the fast-paced commercial real estate market
Every commercial real estate transaction has a nuance to it and is driven by numerous commercial and legal aspects.
Watching out for and resolving contentious issues every step of the way is critical to prevent the deal from falling apart. This is less likely when a commercial property lawyer guides you and defends your interests. You can have your cake and eat it too.
Stay on top of best practices and industry trends.
Commercial real estate is an interdisciplinary field. Apart from hard-core investing acumen, the knowledge and experience of litigation, tax, architecture, and environmental experts can be invaluable in executing high-stakes property deals.
Get practical solutions from a commercial property lawyer today to close deals successfully and grow your portfolio.
Author: Riley has studied commercial real estate law and is building experience in the sector. He writes blog posts on topics related to real estate law and property attorney services.