Commercial Real Estate Closings
A purchase or sale of commercial property is more complex. Due to the complicated nature of commercial real estate transactions they take much more time than residential transactions. Most commercial real estate transactions require the services of an experienced attorney.
The Law Offices of John J. Cardile has over 30 years of experience in commercial real estate transactions. The firm has represented sellers and purchasers of commercial office buildings, retail buildings, industrial buildings, large multi family buildings, and real estate developers.
Letter of Intent
Larger transactions or transactions where the business attached to the real estate is also for sale. The Letter of Intent should reduce into writing the main terms of the transaction. While the Letter of Intent will not include all the terms the contract will be more detailed. In addition to the Letter of Intent the seller may require the buyer to offer proof of funds or pre approval for financing.
Drafting and Negotiating The Contract
The first step in any commercial real estate transaction is negotiating the contract. Generally, an attorney will draft the contract and send it to the other party for review. Unlike residential closings there is no attorney review period because the contract is drafted and negotiated by the attorneys and their clients. Negotiating the contract can last for a few days or a few weeks depending on the terms each party is willing to accept. In addition, the contract can go back and forth between the Buyer and Seller until a final version is created and both parties sign.
In a commercial transaction there may be two contracts one for sale of real property and one for sale of the assets of business. You may choose to have two separate contracts or just list the assets as included in the sale of real property.
What to Do When the Building is Occupied by Tenants
When is building is occupied by tenants the Buyer must obtain a copy of all written leases from the Seller. Then the Buyer should request a certified rent roll. The rent roll will contain the monthly rental amount for each unit and security deposits amounts for each unit. The Buyer should also request Tenant Estoppel letters. An Estoppel letter should state the security deposit amount, date the rent is due, and monthly rent amount. Once the Tenant signs the letter he is estopped from later denying the security deposit amount and monthly rent amount. Furthermore, the Buyer will want to get letter of attornment from the Seller. A letter of attornment goes to each tenant and states that there will be a new owner and rent should be paid over to the new owner as of a certain date.
The buyer will apply to the lender for a mortgage. Generally speaking commercial loans require a larger down payment than residential loans. The lender will generally a mortgage commitment with all the conditions that need to be satisfied before closing. These conditions will include the following among other conditions:
Purchase of hazard insurance
Confirmation of financial records
Certificates of good standing
The buyer will want to get environmental inspections done. If environmental issues arise the buyer should determine the cost to mitigate such issues. Also, the buyer will want to make certain they can obtain licenses and permits to operate the business at the designated location. Most land is zoned for an intended use. Any changes in that use will require the buyer to obtain a variance which can be difficult and costly.