Commercial Real Estate

3 Dangers To Be Aware Of In A Commercial Real Estate Deal

how to be cautious during a commercial real estate deal

In order to run a business, you need a building. Finding that piece of commercial real estate property is a long and complex process. And once you have found the property and you have spent many weeks negotiating every single point of your deal, you feel like you are ready to come to an agreement. The sale or lease document is prepared and is several pages long. All that remains to be done is for you to sign on the dotted line and the process will have been completed.

So how do you proceed from there? One option is to go over the document yourself and find the most important elements of your lease or purchase.

If you’ve never been involved in renting commercial space, your first glimpse of a commercial lease may be overwhelming. They are lengthy, full of jargon and unfamiliar terms, and always written to the landlord’s advantage. But they are negotiable.

However, it is not usually recommended to do this yourself because of said jargon and other potential legal pitfalls. Another option is to search for a professional real estate lawyer, who can change the deal so that you are the only real beneficiary. This doesn’t set you in a very good light and it is quite opportunistic. The final option is to speak to your agent, but agents aren’t qualified to provide you with legal counsel. Hence, you must find a way in which you can combine all three of the above options. You should go through the main points of the deal yourself, speak to your agent about where he could advise on some areas of concerns, and have those specific areas looked at from a legal perspective. Let’s take a look at three key issues to be aware of.

1. Warranties and Representations

This is the element that your legal advisor will likely focus on the most.

Every contract has representations and warranties, which are basically the underlying matters or facts as they are being presented in terms of the contract. When selling something such as real estate, the seller represents himself to be the owner, who has the legal authority to sell the property. He warrants that the property is as he represent it to be.

The sellers, in this case, will say that their clients aren’t representing at all, and the buyer wants to have a warranty on every current fault and future ones, until the end of times. Neither, of course, will get what they want, which is why they are arguing for opposing extremes with a view of meeting somewhere in the middle. You do have to make sure, as a buyer, that the seller actually has the authority to sell the property.

2. ‘As Is’ Purchases

Few people really understand the ‘As Is’ clause. Sellers assume that it means the buyer has to accept the faults that are found in the property and that the buyer simply has to accept it. Needless to say, this raises concerns about hidden problems. The ‘As Is’ clause comes with a contingency period, however. This period gives the buyer the chance to determine whether there are any problems. Essentially, it means that they don’t have to simply take a seller’s word for things.

3. Contingency Waiver

The contingency period is a big one and if during that time, buyers discover something they are not happy about, such as a leak in the roof of an office building, for instance, they may cancel the deal. Generally, there are rules associated with this if the prospective buyers also want to have their deposit refunded.

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