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A Buyer’s Guide: What You Need To Understand Before Signing A Commercial Lease

When it comes to commercial real estate, there are a few key provisions that are important for buyers to be aware of. These include the purchase price, the closing date, the financing terms, and the list of fixtures and fittings included in the sale.

The purchase price is typically negotiable, and will be based on a number of factors including the location of the property, its size and condition, and any zoning restrictions that may be in place. The closing date is also negotiable, but should be realistic given the time it takes to complete all necessary paperwork and inspections. The financing terms should be clearly laid out in the contract, and buyers should make sure they understand all aspects of the loan before signing anything. The fixtures and fittings included in the sale should be itemized so that there are no surprises down the road. Buyers should pay close attention to this list to ensure that all items they require are included.

What Does “as is” Mean in a Commercial Real Estate Purchase?

The phrase “as is” is typically used to describe the condition of the property being sold. In a commercial real estate purchase, it means that the buyer is accepting the property in its current condition, without any warranties or guarantees from the seller. The as-is clause can be advantageous for both buyers and sellers. For buyers, it allows them to purchase a property at a lower price if they are willing to take on any necessary repairs or renovations themselves. For sellers, it protects them from having to make expensive repairs or upgrades before selling the property. However, it’s important to carefully consider the implications of an as-is sale before making an offer on a property.

What is a Due Diligence Period?

A due diligence period is a time frame during the real estate purchase process in which the buyer has an opportunity to fully investigate the property and confirm that it meets their expectations. The due diligence period typically begins after an offer has been accepted by the seller, and ends when the buyer enters into a purchase agreement with the seller.

There are a number of important things that buyers should do during the due diligence period, including:

1. Reviewing all previous inspections of the property.
2. Conducting their own inspections of the property, including a thorough review of the condition of the building, systems, and landscaping.
3. Checking for any outstanding liens or other encumbrances on the property.
4. Reviewing all pertinent zoning and development regulations.
5. Getting estimates from contractors for any repairs or renovations that may need to be made to the property.
6. Consulting with lawyers and tax advisors about potential legal and financial implications of the purchase.
7. Negotiating closing costs, possession dates, and other matters related to the transaction.

The due diligence period is an important part of the purchase process, as it gives buyers time to make sure that the property they are purchasing meets their needs and expectations. It is also an opportunity to make sure that the deal for the property is fair and advantageous for both sides.

What are Contingencies for Financing and Title?

There are a few key contingencies that are typically included in commercial real estate purchase agreements. The first is financing, which gives the buyer a set period of time to obtain financing for the property. The second is title, which ensures that the property is free and clear of any liens or encumbrances. There is the inspection contingency, which allows the buyer to have the property inspected by a qualified professional before closing.

It’s important to note that both types of contingencies can be mutually exclusive, meaning that the buyer can’t have both types of contingencies in place at the same time. Additionally, should the buyer elect to waive either type of contingency, they may be required to provide additional earnest money as consideration for doing so.

Finally, the seller can include an appraisal contingency, which ensures that the property meets a certain value before closing. If the appraisal falls below the agreed upon price, then the buyer has to renegotiate or walk away from the deal. If accepted by both parties, these contingencies will be included in the purchase agreement and must be satisfied before closing.

What does Exclusive Right to Negotiate Mean?

ERNs are a common in commercial real estate transactions and they help to ensure that a seller is dealing with serious buyers and that all negotiations are conducted in good faith.

When a prospective buyer expresses interest in purchasing a commercial property, the seller will often grant the buyer an exclusive right to negotiate (ERN) for a set period of time. An ERN gives the buyer exclusivity in negotiations with the seller and prevents the seller from entertaining other offers during the specified time period.

The key component of an ERN is that it is non-binding on both parties. Neither party is obligated to move forward with the sale, and either party can walk away from negotiations at any time. However, an ERN does give the buyer some negotiating leverage as it shows that the seller is serious about working with them.

If both parties are able to reach an agreement during negotiations, they will then execute a purchase and sale agreement which will bind them to the terms of the sale. If no agreement is reached, then the ERN expires and either party is free to pursue other options.

How to thoroughly examine disclosures in the agreement?

In order to avoid hidden costs or surprises down the road, it is important to thoroughly examine all disclosures in the purchase agreement. This includes reading and understanding any fine print, as well as obtaining clarification on anything that is not clear.

Some key points to look for in disclosures include: (1) The total purchase price, including any taxes or fees that may be due at closing. (2) A complete list of any repairs or renovations that are needed prior to occupancy. (3) Any environmental concerns that could impact the property, such as neighboring toxic waste sites. (4) Zoning restrictions that could limit future uses of the property.

By taking the time to carefully review all disclosures before signing the purchase agreement, buyers can help protect themselves from unexpected costs or problems with the property down the road. It is also important to consult a lawyer when in doubt about any of the disclosures listed in the purchase agreement. An experienced real estate attorney can provide guidance and help buyers make sure their rights are fully protected.

Commercial real estate agreements are complex documents that require careful consideration and attention to detail. As a business owner or investor, it is crucial to understand the provisions outlined in these agreements. Utilizing trusted advisors will also assist you in making informed decisions on the best path forward. With this information at hand, you’ll be better equipped to confidently enter into commercial real estate agreements knowing that you’ve taken all necessary steps to protect your investment.

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