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The phrase “commercial real estate” covers a lot of ground (pun intended).
As for sales and acquisitions, a “commercial” transaction is any transaction that requires more than a standard form contract (like the typical realtor generated contract form for the purchase of a home). Some commercial property can be sold or purchased with a standard form contract, like a vacant, subdivided lot for instance. Most commercial transactions, however, require due diligence periods, seller representations and warranties, more detailed survey provisions and other matters that should be addressed with more than a typical residential form contract.
The attorneys at the Drendel & Jansons Law Group who do commercial real estate transactions have the experience to cover the necessary ground to protect buyers of real property for commercial and investment purposes and to guide sellers of commercial property in dealing with experienced commercial real estate purchasers and developers. We have experience on both the commercial acquisition and development side as well as the municipal side of the equation (zoning, land use, annexation, TIF redevelopment, etc.).
Buyer beware is an apt adage for the person interested in property for commercial use. “Doing due diligence” is the hallmark of the savvy buyer, and every business person should be a savvy buyer. Sellers of commercial real estate must have good counsel in dealing with savvy buyers.
The benchmark of the buyer's concern is the buyer's intended use. Buyers should not assume that property is available for a particular use, even if the property is currently being used as the buyer intends! Wise due diligence involves researching the applicable zoning district and uses allowable in the zoning district in which the property is located. Most local zoning codes are available online.
The inquiry should not end there, however; a trip down to the local village or city hall to meet with the community development director or zoning person is strongly advised. You will learn specific information about the property from municipal staff that you might never find online. For instance, the property may be a legal, but nonconforming; there may be zoning text changes or map amendments afoot that affect the property; there be current zoning violations or property maintenance violations that are unresolved; and so on. This is even more critically important if there is any intention to expand the use, increase the footprint of the buildings or to change the use.
Building time into the contract to research and confirm that the property can be used as intended, both now and in the future, is important in commercial transactions.
Environmental concerns are always more prevalent with commercial property because commercial uses tend to generate more environmental issues. Property that has been developed and platted for residential use was once “commercial” property purchased by a developer who likely did its due diligence to eliminate those environmental concerns. When buying property that is currently being put to a commercial use and has a history of commercial use, a buyer should do the due diligence necessary to eliminate environmental concerns – or to expose them. Building time and mechanisms into the contract to address any environmental issues is important in commercial transactions.
Survey & Title
Commercial buyers (savvy ones) will want time to obtain a survey and review the status of title to the property during the due diligence and contingency periods. Problems uncovered during the due diligence and contingency periods built into the contract can be rectified before the closing, can become a reason to renegotiate the contract and might even put an end to the contract. Money spent up front, however, is well worth the cost to uncover problems that might devalue the property or even make it unmarketable. A seller of commercial property should be aware of the likely demand by the savvy buyer for a survey and title documentation as a contingency to the buyer's obligation to complete the transaction.
Closely related to the intended use of the property is zoning. Many times, a buyer's intended use of property requires some zoning “relief”. The intended use may require special or conditional use approval in the particular zoning district. Large uses may require a planned unit development. Vacant property may require these things plus engineering, subdivision and site plan approvals. Uses or structures that do not conform to the bulk lot requirements in the particular zoning district may require variances. In some cases, map amendments (rezoning) may be required to allow the uses that are intended.
When these zoning issues come up, experienced legal counsel is needed to navigate through the zoning processes that apply, both on the buyer's and the seller's side. Who will take the lead and be responsible for the zoning applications must be negotiated, and the contractual documents must be drafted to accommodate the time and to coordinate the efforts to achieve necessary zoning changes.
Commercial real property transactions can be simple, but are often very complex. Even existing buildings that are being sold usually involve much more time and effort to get to closing than a typical residential home purchase/sale.
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