Notes & updates: None currently.

The Lawyer’s Role in a Commercial Real Estate Transaction

When you purchase commercial real estate, your lawyer will play an invaluable role protecting you and your business interests. The following are several tasks you should expect of your attorney in the transaction.

Guiding you through the process. When you have located a commercial property, how do you go about purchasing it? Your attorney will guide and advise you. These include reviewing the purchase agreement, assisting in negotiation, conducting a title search, and closing on the property.

Explaining the tax consequences of a purchase. Buying commercial property has tax consequences. For example, the buyer may realize an increased property tax burden or might be able to deduct interest payments from income taxes. Income generated from leasing activities has tax implications. Your attorney can assist you to work through the consequences and mitigate any adverse impacts.

Discussing your business needs and negotiating to fulfill them. Your attorney can help you determine your business needs and develop a strategy to fulfill them. Relevant factors may include the date when your business must take possession of the property, which party will be responsible for taxes and assessments currently due on the property, and how the business will pay for the property. Your attorney can help you negotiate a favorable purchase agreement by keeping these factors in mind when you might lose track. If you are an experienced negotiator, he may assist as a consultant, but an attorney can take an active role representing you in negotiations.

Drafting or reviewing the purchase agreement. Either party’s attorney can draft the purchase agreement. It can be advantageous (though more expensive) for your attorney to draft the document. The purchase agreement is a formal, written contract of sale and the most important document in the transaction. The contract dictates all terms of the sale, including contingencies that will permit you to withdraw from the sale if critical events fail—like obtaining financing. If the other party’s attorney drafts the purchase agreement, your attorney should review it for completeness and accuracy in reflecting the parties’ mutual intentions. He can also clarify any unclear terms, and advise you whether you should sign the agreement or return to negotiations.

Arranging financing and reviewing financing agreements. An attorney can help demystify the various financing options and tax and other consequences to you and your business. He can guide you through the complexities of mortgage lending practices and the papers that dictate your and your lender’s obligations. He can also try to negotiate a better deal with the financial institution and ensure that your intentions are reflected in the agreements.

Reviewing title to the property. A seller can only transfer what he owns. Ascertaining the exact nature of the seller’s title is critical. An attorney can review the seller’s title to determine whether the title reflects the property offered. Even if a title insurance company completes the title search, your attorney should review their work and the title to ensure that the legal description is accurate. Your attorney can help you understand the effect of easements and other restrictions and explain whether any conditions may cause your business operational difficulties.

Obtaining a survey of the property. The property’s legal description should conform to a professional survey. The seller might have erected a building or laid a driveway that encroaches on abutting property. A neighbor might have done the same and encroached on the property you want to buy. You may need to decide whether such conditions would ruin your interest in the property. Differences between the description and the actual survey can create future problems. Your attorney can help you decide if you should hire a survey and can review the results.

Researching property zoning. Zoning determines the legality of the business you may operate on the property and other restrictions such as the size and location of buildings and the parking you must provide. The title search and past use of the property will not inform you of the current zoning classification. An inquiry into zoning might reveal that the seller was in violation. If your business does not comply with zoning regulations, you and your attorney must decide whether to go through with the purchase; or to seek a variance, conditional use permit, or change in zoning; or to abandon the property and begin the hunt anew.

Assisting at the closing. Your attorney should attend the closing. Papers must be executed and recorded, money will be exchanged, and ancillary issues will invariably develop. The closing process may be complicated, and eleventh-hour disputes may occur. Your attorney should review the papers at or before closing, be able to explain them to you, and make sure they are properly executed.

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