Ensuring a sound commercial real estate transaction

On Behalf of | Jan 4, 2022 | Uncategorized

Delaware business owners who are aiming to buy or sell commercial real estate can find it to be a surprisingly complex and extended process. Whether it is part of an expansion or just starting out, commercial property transactions are not at all like purchasing or selling a home.

Not only is it essential to have a thorough due diligence that will include a careful title examination and inspection, but there are also risks when the client is not aware of local regulations and state laws or has not considered liability or other considerations before negotiations begin. For business owners preparing to enter the Sussex County real estate market, it can be valuable to have a legal advocate to assist with the contractual aspects of the transaction.

Beginning the transaction in the right order

There are important steps to take as part of the process of buying or selling commercial real estate that may involve special considerations or negotiations. The preliminary buy-sell agreement usually contains a term sheet or letter of intent which will serve to identify parties as well as their individual positions going into the transaction. Some provisions in the initial agreement will likely also be in the formal agreement.

Due diligence will investigate and identify:

  • Title and survey
  • Service contracts, management agreements and leases
  • Zoning regulations and use compliance
  • Engineering and environmental factors
  • Lending arrangements

Negotiating terms and conditions

Negotiations will then begin that discuss terms and conditions to satisfy the needs of each party during the formation of the purchase and sale agreement. Some important aspects will typically include:

  • Representations and warranties, laying out risk factors as well as liability and indemnification obligations should there be inaccuracies in the representations or if there is a breach in the warranty.
  • Covenants establishing the obligations for maintenance and repair, as well as maintaining insurance and the seller’s release to enter into new contracts.
  • Closing conditions that set conditions for the buyer to acquire property and finance the purchase, as well as contingencies of use.
  • Prorations and credits.

The transaction may also have issues that involve industry-wide considerations, local ordinances, financing and other factors. Understanding the process can help prepare business owners for potential risk while clarifying their goals from the outset of the process.

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