Are you in the market to buy or sell commercial real estate (CRE)? Buying commercial property for a new investment endeavor or a new business is rewarding and can be quite profitable if the process is undertaken strategically and in compliance with state, city, and local laws. If you are looking to sell commercial property, the goal is a successful closing experience for you and the purchaser with a sales price and terms that works for all parties. There are challenges and circumstances specific to commercial property, however, that can make commercial real estate transactions end in disarray and disappointment if not done correctly. It's a longer, more intricate process that needs careful coordination.
The Law Office of J. Caldwell Guilds III handles all types of commercial real estate transactions. We will discuss your goals and objectives, help you value the property, structure the investment, negotiate contracts and terms, evaluate financing options, and coordinate the closing with all parties. Schedule a Complementary Consultation today to learn more about our commercial real estate services.
Types of Commercial Real Estate
Commercial real estate (CRE) is property used for purposes related to business, rather than residential. CRE can be a mom-and-pop store or a huge shopping mall. CRE includes restaurants, hotels, multifamily apartments, hospitals, and doctors' offices. CRE is generally broken down into five distinct categories: industrial use, multi-family rentals, office space, hospitality, and retail.
- Industrial Use. Industrial use properties consist of businesses that make and store goods, like manufacturing facilities and storage warehouses.
- Multi-Family Rentals. A multi-family rental is generally a large property with multiple smaller units that families rent to live in as their primary residence. They can be small, housing only five or more families, or large, housing hundreds of families.
- Office Space. Office space is another type of CRE often considered to be the most high-risk. These properties are generally broken down into three different classes based on their condition and location: Class A for the highest quality buildings, Class B for older but still high-quality buildings, and Class C for older buildings in deep need of maintenance and care.
- Hospitality. Hospitality properties are meant for travelers and include hotels, entertainment sites, or restaurants.
- Retail. Retail properties include small stores, strip malls, and restaurants.
Selling Commercial Real Estate
Commercial Real Estate (CRE) is property used for business rather than residential purposes. A multi-family housing structure of four or less units is considered residential real estate. A multi-family structure of five or more units is commercial real estate. Buying and Selling CRE is a process that requires extensive due diligence and attention to detail in structuring the transaction. The following are six basic action items most states require for a successful commercial real estate transaction.
Determine the Selling Amount
Determining a fair market value purchase price suitable to both the buyer and the seller may take some work, and the terms and timing of the payments are frequently heavily negotiated. There are numerous considerations, such as any lien amounts that will need to be paid off at or before closing, as well as the value of the property. If the property is being sold along with a business, the value of the business must also be determined. Finally, the asking price should leave some room for negotiation.
Enter into a Purchase Agreement
Negotiation between the parties should be done in conjunction with the drafting of a term sheet or memorandum of understanding detailing the terms of the deal. Once the seller and purchaser agree on the terms of the sale, a full purchase agreement be drafted and executed. This agreement should spell out all the terms of the agreement reached by the parties in the term sheet, including the obligations and responsibilities each party must carry out for the closing to run smoothly. Having a commercial real estate attorney prepare the agreement is greatly beneficial. It is best if each side retains its own lawyer.
Comply with Purchaser Obligations
There may be certain requirements the purchaser must comply with to obtain the financing they need to purchase the property. This may include property inspections and appraisals. The seller will need to be considerate of these requests and comply with them so that the purchaser can meet their obligations under the purchase agreement.
Sign the Deed and Other Closing Documents
For the closing on the property to be complete, there are certain documents the seller will need to execute. This includes the deed and closing statement, as well as other documentation that may be required by the specific jurisdiction, including national, state, municipal, and local requirements. It is in the best interest of the seller to have their own attorney review these documents to ensure they know exactly to what they are, and are not, agreeing.
Payoff Existing Liens
Although paying off the actual lien is a matter that may be handled by the closing agent, the seller needs to be certain the agreed-upon selling price is enough to pay any liens on the property as well as any other fees, like the amount owed to the real estate agents, the closing agent, and the attorney.
Hand-Over Property to Purchaser
Once all documents have been signed, and the money has changed hands, it is time for the seller to hand over the property to the purchaser. This includes the actual keys, security and alarm codes, and any other information the purchaser needs to get full use of the commercial property.
Documents You Need to Sell Commercial Property
States vary as to what documents a seller must provide. Some of the more commonly required documents include:
- Deeds. The deed is the legal document that transfers ownership of a property from the seller to the purchaser. Every state has requirements regarding the proper way a deed should be executed to be valid.
- Assignments of Rights. In some situations, the business located on or in the CRE is also set to be transferred. When this happens, an assignment of rights is needed to spell out exactly what the seller is transferring to the purchaser.
- Disclosure Statements. Although not required in every state, a disclosure statement is the seller's way of legally disclosing to the purchaser any defects the property has.
- Property Access. Although not an actual document, the seller may be required to give the purchaser and their agents access to the property prior to the purchase in order to comply with the terms of the purchase agreement.
Obtaining an experienced real estate attorney to help identify and review the documents needed is very helpful for all parties involved.
Seller's Rights and Obligations in Commercial Real Estate Transactions
A seller's rights and obligations vary according to the state where the property is located. Even so, most sellers have certain rights regardless of where they are, including:
- The right to have an attorney represent them throughout the process
- The right to negotiate the terms of the purchase agreement
- The right to enter into new leases and contracts
The seller may also have general obligations, such as disclosing material defects of the property to the purchaser or ensuring that they believe the title to the property is clear.
How a Real Estate Lawyer Can Benefit a Commercial Property Sale
There are many reasons to hire a real estate lawyer for a commercial property sale. At the Law Office of J. Caldwell Guilds III, our real estate attorney handles complicated commercial real estate matters and understands the ins and outs of commercial financing, buying, selling, leasing, and developing commercial properties. We also assist with issues related to:
- Zoning
- Land use and development
- Taxes
- Property liens
- Title insurance
- Environmental compliance
- Easements
We assist with negotiations of sales prices, contracts, and more. In addition, we will review, draft, and/or analyze real estate sales agreements and any other contracts necessary for the sale.
Contact a Commercial Real Estate Attorney Today
Selling commercial real estate is a complex process. So much time, effort, and other resources are put into it that you want to get it right. Delays or mistakes can lead to problems, and problems can lead to a breakdown in the negotiation and closing process.
At the Law Office of J. Caldwell Guilds III, our real estate lawyer provides legal counsel to individuals and businesses in commercial real estate transactions. Whether you are an experienced real estate developer or a first-time buyer, we will protect your rights and represent your interests.