Regardless of whether it’s commercial or residential, any real-estate transaction can be overwhelming. They are typically full of long negotiations and complex contracts, and the process of closing can be a real bear. The fact of the matter remains, acquiring real estate is a major milestone in anyone’s personal or professional life. The skilled attorneys at M&A Law Firm are available to help you through any residential or commercial real estate purchases you may be making in the Chicago area, but here are some things to keep in mind before you sign on the dotted line.
Commercial and Residential Real Estate Purchases are Different
The typical commercial real estate transaction is slightly different than a residential purchase, which is why commercial real estate buyers and sellers often need a great deal more legal help with their sales than the typical homebuyer. If you’re considering a commercial real estate purchase you should make sure to budget the time and cost for legal help. But for the time being, we are going to just briefly lay out some the main contracts and closing procedures commonly involved with a commercial real estate transaction. If the property being conveyed in the commercial real estate transaction has tenants, then things get even more complicated. In these cases, a buyer will need to negotiate clauses in the agreement pertaining to the copies of leases, notices given to tenants, tax returns to verify rental incomes, and so on.
Illinois has developed an entire body of common law surrounding the purchase and sale commercial property. For example, certain recitals – which are boilerplate legal terms that spell out important contractual rights – may not be binding unless they are expressly incorporated into commercial real estate contracts in writing. State law also limits the legal and financial remedies that are available too commercial real estate buyers or sellers who find themselves in the unfortunate position of a deal that has fallen through. In the state of Illinois, as in most states, contracts for the purchase or sale of commercial real estate must be in writing, so be sure to discuss any commercial real estate sale and purchase agreement with a qualified attorney before signing on the dotted line.
Commercial Real Estate Contracts
Typically, a commercial real estate transaction begins with a buyer offering a letter of intent or otherwise formally expressing interest in the commercial property. A letter of intent is a preliminary agreement that roughly outlines the fundamental terms and elements for the final agreement, but it’s not a legally-binding contract to purchase the property. Rather, it’s a statement of an offer. After the offer has been accepted, an attorney will typically draw up a Commercial Real Estate (CRE) sale and purchase agreement.
The CRE agreement typically provides a detailed description of the steps that must occur in order to close on a commercial real-estate transaction. The agreement also outlines the exact real estate or personal properties that are being conveyed in the transaction. For example, does the contract just include the real property – which would be structures and land that are included in the purchase – or personal property as well, like furniture and décor? If personal property is being conveyed, additional contracts are required to ensure your legal rights are protected. In these cases, a Bill of Sale must also typically be carried out as well to transfer ownership of specific personal property to the new buyer. All of these terms must be carefully negotiated, which is why it’s helpful to have a good real estate attorney on your side. The contract must also include terms addressing the transfer of title, including who holds the properties’ deposit – generally, this is an attorney, a title company, or a neutral third party, but decisions like these must be made carefully. And of course, the agreement should also provide specific details regarding what happens to that money if the deal falls through.
The details of a CRE purchase and sale agreement can be tricky, and often buyers and sellers get caught up. Because commercial real estate transactions and their respective contracts have so many working components that a little bit of expert assistance can go a long way. This is particularly true when it comes to navigating some of the finer points of finalizing a fair and honest commercial real estate agreement.
Watch Out for Fine Print
Commercial real estate transactions tend to be much more complicated than the typical home purchased. Commercial real estate agreements may also address less common types of property and rights, like leases, licenses, water rights, and warranties. These rights must be conveyed through their own legal instruments, and often these property-related are essential for conducting business. As a result, all rights associated with a commercial property transaction must be properly conveyed or assigned in order for the buyer to realize the value of his or her investment.
Due to the complexity of commercial real estate transactions, it’s very important to use the services of a good real estate attorney. A lawyer can help you make sure you get the best deal you can during negotiations and ensure your rights are protected during each phase of the sale.
Commercial Real Estate Closings Can Be Tricky
Depending on how complex the real-estate transaction is, negotiations over the actual contracts can be a headache for both the buyer and seller. And unfortunately for all of the parties involved, finalizing the contracts is not even the most difficult part of closing a commercial real estate agreement. All too often, commercial real estate agreements will proceed through the negotiation and sale, only to fall apart at closing.
Before a commercial real-estate transaction can be finalized, both the buyer and seller must accept the title report and complete all closing documents. This can be an extensive process, and it requires cooperation for the execution of documents ranging from assumptions of warranty and lease, to environmental reports, deeds, and assignments of liability. The skilled real estate attorneys at M&A Law Firm can help buyers and sellers of commercial real estate work their way through the complex contracts and closing procedures associated with commercial real-estate transactions. If you’re planning to buy or sell commercial real estate in the Chicago area, contact us today!