Profile of a Commercial Real Estate Transaction
The purchase of commercial real estate should begin by retaining the services of an attorney who is familiar with the premises which you intend to purchase, as well as the zoning by-law or ordinances of the municipality in which the premises is located. An attorney should first establish that the current or intended uses for the premises are permitted as a matter of right, or if the current or intended uses are permitted by a special permit or variance or both. Often, this can be determined by referring to the zoning map, which is a part of the zoning by-law or ordinance, and to the zoning by-law or ordinance itself. Your attorney is responsible for reviewing all amendments to the by-law or ordinance, as well as any proposed or approved amendments which may not have received final approval but which may have an effect on the future use or uses of the premises.
Your attorney should also review the deed of the current owner to determine the correct name of the current owner of the property. Recent amendments to the rules of professional conduct mandate that the attorney and client agree in writing to the arrangement for payment of fees and expenses and the scope of the terms of the engagement. The attorney’s fees are most often based on an hourly rate, however, this may vary depending on the scope of the engagement between the attorney and the client.
Once your attorney has reviewed the zoning by-law or ordinances and the deed and has a clear understanding of the use of the premises or intended use, he or she can assist you in the preparation of an offer to purchase the premises and a purchase and sales agreement. Often, because of the very nature of commercial real estate, the offer will contain one or more contingencies or conditions which the buyer requires to be fulfilled or met before the buyer is required to complete the purchase of the premises. There are many standard conditions which are common to any purchase of commercial real estates such as a clear title, place and time for delivery of the deed or title to the property; building and mechanical system inspections; examination of any leases or other tenancy agreements; mortgage financing of a portion of the purchase price of the premises; satisfactory appraisal of the value of the premises; site inspections of the premises by a reputable licensed site professional to determine the presence of any hazardous waste or materials, or if they have been stored or generated in the past. The conditions or contingencies of the purchase and sales agreement provide a method for the buyer to be excused from performance of the buyer’s obligations under the purchase and sales agreement and to obtain the return of any deposit paid under the terms of the agreement.
It is quite common for the buyer to undertake responsibility for securing necessary permits or approvals from the local permit granting authority of the municipality where the premises is located. It may require multiple appearances before boards or commissions of the municipality or state or Federal permit granting authorities in order to complete the approval process. Once the buyer has satisfied the conditions or contingencies which the buyer and seller have agreed to in order for the buyer to complete the obligations under the purchase and sales agreement, the closing of the property can be scheduled. The buyer, seller and lender’s counsel agree upon which documents are required in order to complete the transaction and who has the responsibility to prepare or to obtain these documents.
Frequently, buyer’s counsel is required to submit a zoning opinion to the lender for its approval. The lender will rely upon the buyer’s counsel’s zoning opinion in granting a mortgage loan if the buyer is obtaining a mortgage for the necessary funds to purchase the premises. Seller’s counsel will usually be required to prepare an opinion letter of the buyer’s ability to enter into and to complete the transaction described in the purchase and sales agreement. Frequently, tenants of the premises are asked to attest to the existence and compliance with current leases or tenancy agreements. Typically, the buyer receives an assignment of the leases, tenancy agreements, security deposits, and the last month’s rent. Adjustments are made between the buyer and seller for items unpaid or paid in advance by the seller including real estate taxes and rents.
In connection with commercial real estate purchases, the advice and counsel of a local experienced attorney is critical. Engaging an attorney at the outset will help to relieve the anxiety related to the transaction and likely ensure the success of the transaction.