If you are anticipating a commercial real estate transaction, you should take into account the considerable differences between commercial and residential transactions. Many of these differences are based on potent legal considerations that are not at all obvious. A lot more than you might think depends on the drafting of the purchase and sale agreement.
The following are descriptions of only a few of the more obvious pitfalls you are likely to encounter:
Title Defects
Real estate deeds are part of a public record that attempts to track ownership interests in the property as they change hands over time (fee simple, easements, liens, etc.). Ownership interests that are not accurately reflected in the record can come back to haunt you. The property may be subject to a lien, for example, or there may be an ownership dispute.
Onerous Lender Requirements
Most real estate purchasers rely at least partially on mortgaging, and most lenders reserve the right to foreclose on the property in the event of default. A lender might also prohibit you from using the property as collateral for other loans, which could cripple your business if it is unable to raise capital otherwise.
Mechanic’s Liens
Someone who has done work on the property might have the right to file a mechanic’s lien against it to secure payment for the work. If there is a dispute over whether the work was properly performed, the presence of a mechanic’s lien could be used against you. It could make the property difficult to market, and it could even result in foreclosure if you lose the dispute.
Zoning Restrictions
What happens if you try to start a business on property that is zoned for residential use only? What if your property is zoned for business and you start a noisy nightclub that draws complaints from neighbors living in a nearby residential zone? What if your property is re-zoned to forbid your business activities after you have already purchased the property?
Environmental Contamination
Suppose you purchase property with an underground storage tank (that you didn’t know about) that leaks toxic chemicals into the soil? You could be hit with a huge cleanup bill even after you sell the property to someone else. Many forms of environmental contamination are difficult (if not impossible) to spot in a superficial inspection of the property.
Price Fluctuations
Suppose you purchase commercial real estate in the midst of a local real estate bubble, and the price subsequently drops. You then seek to sell the property, only to discover that the new value of your property isn’t enough to pay off your mortgage. Price fluctuations can be hard to predict. One might occur, for example, if the government re-routes the course of a planned highway.
Retain Expert Legal Counsel Early in the Process
Commercial real estate transactions can get ridiculously complex, and even a small mistake in negotiating and documenting the transaction could come back to haunt you months or even years down the road.
At CKB Vienna, our experienced attorneys are skilled at identifying every nuance and detail without losing sight of the big picture. We serve clients throughout Upland, Fontana, Ontario, Chino Hills, Claremont, Rancho Cucamonga, including Alta Loma and Etiwanda. Call us at 909-980-1040 or contact us online to learn how we can best assist you.