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Legal Counsel For Your Commercial Real Estate Transactions |
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Author: from constant-content
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There are many places for professionals to operate in the commercial real estate industry. With many complex strategies and operations that take place with commercial real estate deals, these people are necessary to the creation of solid, profitable deals for an investor.
It is common knowledge that commercial real estate is risky due to the amount of money involved in each deal. And this is true. However, it is not common knowledge the other aspect of commercial real estate that makes it so risky. That is the concept of "buyer beware." You see, the responsibility to find out any problems with a property is solely on the buyer"s shoulders.
For this reason, savvy investors must surround themselves with professionals with specialized knowledge who can protect the buyer from any problems that might arise with the property or deal.
If you look at the residential real estate investors], however, they usually do not have a huge team surrounding them and can usually invest in a few homes at a time with ease.
Why is it that the residential investor does not need a full time team to look watch over and consult every deal prior to purchase? Beyond the obvious reason that residential real estate does not involve nearly the millions, tens of millions, hundreds of millions and even billions of dollar price tags and profits that commercial real estate is known for, there is another very important attribute of commercial real estate that separates it from residential real estate- the "buyer beware.".
We all know that with most residential real estate, the buyer must be disclosed of every aspect of the property- good or bad. For example, if the roof was leaking in a home, but it was summer so the purchaser may not necessarily find out until rainy season, then the owner or agent must disclose this fact to the purchaser. It is illegal for the owner or agent to withhold any information from the purchaser. This law greatly decreases the risk on the purchaser"s behalf and if a problem arises that was not fully disclosed at the time of purchase, then the purchaser could receive his or her deposit back and the owner and agent could suffer penalties.
In residential real estate, the buyer does not need to beware (in this sense) because every detail must be disclosed so he or she has the absolute facts on a property before deciding to part with a down payment or take out a mortgage to purchase the property.
The opposite is true in the commercial real estate industry. The owner or agent does not need to disclose any information about the property to the purchaser. In fact, if the new owner discovers that the land he or she purchased is toxic, and the previous owner or agent said nothing, it is the new owner"s responsibility to have the land cleaned. The new owner must pay all legal and cleaning bills that come along with toxic property.
This may seem rather unfair. Why should the residential real estate industry have full disclosures while the commercial real estate industry does not? In commercial real estate, you have a certain amount of time prior to purchase to perform due diligence, or a complete analysis of the property. This may include building inspections, soil tests, infrastructure analysis, financial analysis etc. The buyer is completely responsible for retrieving the facts on a property.
It is considered an open and free market so, "buyer beware." There is a lack of need to protect the buyer or seller by the law. Therefore, it is increasingly important to have commercial real estate professionals looking out for the commercial real estate investor at every turn.
Because the law does not protect the buyer, the buyer must protect his or herself. Legal counsel should be brought in to oversee every single deal. This includes conditional statements on a contract and performing the most in-depth due diligence one can possibly do. Commercial real estate is not something you can look at for a few weeks and then decide you want to purchase like a home. It can take 45, 60, 90 days and more to perform due diligence, depending on the purpose of the property and how complicated the property is.
Let"s look at an example. Purchaser A wants to purchase a property from Seller B. The property is raw land and is currently zoned R-1, or residential lots one lot per acre. According to the agent, there is a good possibility that the city needs additional commercial land to balance out the additional homes and apartments that were recently built near the subject property. For this reason, the city may be interested in rezoning the land from R-1 to commercial.
Purchaser A can see the profit potential of this rezone and wants to purchase the property. Purchaser A lets the owner know that he wants to purchase the currently zoned R-1 property. Purchaser A is acting in good faith that the property will be rezoned to commercial. But just in case, Purchaser A includes a conditional clause that states that if the property cannot be rezoned to commercial, then the contract is null and void. Purchaser A will no longer have a liability toward the property and owner.
This was an intelligent move Purchaser A made because in this case, the property could not be rezoned to commercial. Instead of sitting there with a much less valuable R-1 zoned property, Purchaser A was left with no property at all, but no financial or legal problems either. And that is far better than a worthless property and a legal battle to contend with.
Every commercial real estate deal is extremely different. Buyer and seller personalities, the quality of due diligence, the integrity of the buyer and purchaser, the financial needs, and skills of professionals such as the escrow company and commercial real estate owners all play a huge role in how each deal results. The best and most sound advice I can give you is never take what you hear for face value. Verify every fact and have your commercial real estate professionals available at every turn. The information they can conjure can save you a lot of money and legal headaches by simply getting the facts verified and inserting conditional clauses in the contract.
Whatever your role in the commercial real estate industry, this is an important topic to have a clear understanding on. If you are a professional working for the investor, it will be your responsibility to perform complete due diligence and uncover all necessary information regarding the property. If you are a member of the legal counsel, you had better understand all elements of a property and the necessary conditional statements that can be used in order to protect the investor. A slight overlook can mean an immediate, extremely costly failure.
When working within the commercial real estate industry, you must rely on your own resources to verify facts and uncover problems that are not disclosed directly to you by the owner or agent. Verify once, twice and a third time, and always have professionals monitor the workings of a deal. This will limit the number of failures and headaches and maximize profitable, successful deals.
$600 million worth of property is being managed by Tony Seruga, Yolanda Seruga, Yolanda Bishop and their partners as of May 2006. They specialize in commercial real estate, and are always looking for new projects across the U.S. www.maverickrei.com. |
Merchant Solutions 
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