The Attorney’s Role In A Commercial Real Estate Purchase
When you are purchasing commercial real estate, your attorney plays an invaluable role in protecting your and your business’s interests. Below are a number of tasks you should expect us to complete during the transaction.
Guiding you through the process. Now that you found a commercial property for your business, how do you go about actually buying it? Your attorney will lead you through what to do and when, and advise you on key points throughout. Some of these include reviewing the purchase agreement, assisting in negotiation for the sale, conducting a title search, and closing on the property.
Explaining the tax consequences of a sale or purchase. The purchase of a commercial property has tax consequences. For example, the buyer may have an increased property tax burden, or may be able to deduct interest on financing from personal or corporate income taxes. If the buyer will lease part of the building to another party, income from those activities will also impact the overall tax picture. Your attorney can help you work through the effects and decide how to minimize any adverse impacts. The Seller may be able to reduce taxes by using an installment sale or like kind exchange for other real property.
Discussing your business’s needs and negotiating to fulfill them. Your attorney will help you explore your business’s needs and create a plan to fulfill them in the sale.
- When does your business need to occupy the property?
- Who will pay existing tax and assessment obligations when the property is transferred?
- How will your business pay for the property?
Once your attorney knows the answers to these questions, he can help you negotiate a favorable purchase agreement. If you are an experienced negotiator, he may take an advisory role, but an attorney can also take a more active role as your representative in negotiations.
Drafting or reviewing the purchase agreement. Either party’s attorney can draft the purchase agreement; sometimes it can be advantageous (though more expensive) for your attorney to do so. The purchase agreement is a formal written contract for the sale, and is the most important document in the transaction. It will dictate all the terms of the sale, including contingencies that will allow you to withdraw from the sale if an important event, such as your receiving financing, does not occur. If the other party’s attorney drafts the purchase agreement, your attorney can review it for completeness and accuracy in reflecting the parties’ understanding. He can also explain any terms you are unclear about, and advise you if you should sign the agreement or return to the negotiating table.
Arranging financing and reviewing financing agreements. An attorney can help you make sense of the various financing options available, and the tax and other consequences to you and your business. He should assist you in navigating through the complexities of mortgage lending practices and the documents that will govern your and your lender’s obligations. He can also help you negotiate a better deal with the financing institution and ensure that your understandings are accurately reflected by the contracts.
Reviewing title to the property. A seller can only transfer what he owns; it is therefore important to ascertain exactly what the status of the seller’s title is. In California, a title insurance company will conduct a title search. We will then review the title search results and copies of underlying documents called a preliminary title report, as well as the ultimate policy of Title Insurance.
Even when a title insurance company performs the title search, your attorney should still review it to ensure that the legal description is correct, to help you understand the effect of easements and other restrictions, and to determine whether any conditions exist which may cause difficulties for your operation.
Obtaining a survey of the property if none has been made recently. The legal description of the property may not match an actual survey. For example, the seller may have built a structure or driveway that encroaches on a neighboring property or a neighbor may have done the same to the property you want to buy. If this is so, you may need to decide whether to continue with the purchase, or determine what you need to do to remedy the situation. Your attorney can help you decide whether a survey should be ordered and review the results.
Researching property zoning. Zoning will determine what kind of business you can operate on the property, as well as other restrictions such as the size and location of signage and the amount of parking that you must make available. The title search and previous use of the property do not tell you about the zoning; in fact, an inquiry about the zoning may reveal that the seller was violating a number of provisions. If your business does not comply with zoning, you and your attorney will have to decide whether to go through with the purchase, or whether to seek a variance, conditional use permit, or change in zoning.
Assisting at the closing. Your attorney should be with you at the closing for the property. Documents must be signed and recorded, money must be exchanged, and various provisions such as insurance requirements must be resolved. This process can be confusing, and last-minute disputes may arise. Your attorney should have reviewed all documents at or prior to closing, and should explain them to you and make sure they are properly executed.