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Commercial Real Estate Transactions.

Commercial real estate transactions involve more complex issues than residential transactions. A commercial real estate sale contract involves property that is sold or purchased for business or investment purposes. Each type of commercial properties will dictate a slightly different commercial real estate contract and terms of sale, thus the sale of a mixed-use, multi-tenant office/shopping complex, for example, will dictate the use of numerous contractual provisions that are not necessary in connection with the sale of unimproved land held for investment, or a single-user commercial building.

Contract

The process of negotiating the terms of, and the execution of, commercial real estate sale contracts usually does not follow the procedure for a residential transaction. Although real estate brokers are frequently retained in commercial real estate sales, commercial brokers generally do not assist the parties with completing a standardized contract; rather, the real estate sale contracts are generally prepared and negotiated through the parties' attorneys. Commercial brokers frequently prepare a non-binding letter of intent, which the parties execute, setting forth the general terms the parties have agreed to in principal, and then submitted to one of the attorneys in connection with the preparation of the contract. The initial draft contract is then sent to the other attorney for review, and revisions are negotiated and drafted through the attorneys.

Due Diligence

Before purchasing commercial real estate and making a significant investment and commitment, a purchaser generally will require that the seller allow for the right of the purchaser to investigate and examine various aspects of the real estate, and to assess the economic viability of the purchaser's intended use of the real estate. This right to investigate is commonly known as the purchaser's “due diligence,” and the time period allowed to conduct this investigation is known as the “due diligence period.”

Due diligence can involve how the property is currently used, or how it can be used in the future. Buyers, sellers, and owners of commercial real estate must consider zoning requirements in regard to a commercial real estate transaction. All parties are considered to have constructive knowledge of zoning restrictions. These restrictions require consideration of questions like whether the new owners will have to install sprinklers, or whether the new owners can add additional parking.

Due diligence involves examining the current financial information as well. Performing due diligence on leases for the acquisition of a commercial property requires some understanding of the various types of leases — what the underlying “norm” is for each and its impact on the economic analysis of the property. In addition, the issues that need to be investigated vary depending on the type of lease and property involved.

Generally, due diligence provisions allow for the purchaser to terminate the real estate sale contract based on the due diligence investigation. The due diligence provision is one of the most important provisions of the contract, which works most effectively when it is tailored to the transaction at hand. We always attempt to establish a relationship with our clients so that the provision exemplifies the goals which are most important to our clients' business.

Environmental Concerns

Virtually every commercial real estate transaction has an environmental component. Even if the property has never been used in any way that would raise any environmental concerns, and there are no adjacent or nearby properties of concern, most lenders will require at least a Level I Environmental Audit done on any commercial property prior to lending money. It is important that a client's attorney be able to understand his clients concerns, and the impacts of the environmental issues on either the sale or the purchase of the commercial property. Mr. Siebert background as well as his time as an Assistant Attorney General in the Environmental Law Division gives him a unique understanding of these issues and the ability to assist his clients through the maze of issues which often arise in this regard.

1031-Starker Like-Kind Exchange

When selling an investment or commercial property, tax is due on the capital gain between the sales price of the property and the basis. If done correctly, a Seller can defer capital gains tax by purchasing a replacement property. Like-kind exchanges of commercial real or personal property under Internal Revenue Code Section 1031 are tax exempt if handled properly. The tax benefit translates into immediate cash savings of up to 28% for individuals and 35% for corporations.

Consult with experienced attorney when a tax-free exchange is contemplated. We have the background and experience to help you in the purchase, sale, or exchange of commercial property.

 

FOR MORE INFORMATION ON THIS SUBJECT OR TO SCHEDULE AN APPOINTMENT PLEASE CALL THE LAW OFFICE OF JAMES C. SIEBERT & ASSOCIATES AT 847-253-7500, E-MAIL INFO@JCSLAW.COM OR YOU MAY CONTACT THE LAW OFFICE OF JAMES C. SIEBERT & ASSOCIATES THROUGH THIS WEBSITE.

 

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