A commercial real estate transaction involves a property that is exclusively used for business purposes such as a restaurant, a warehouse, an office building, a multifamily rental, a strip mall, or a hotel. A seller and a buyer are the key parties to a commercial real estate transaction but typically many more parties get involved throughout the contract negotiation, drafting, and closing processes.
A realtor is a licensed agent who represents either the buyer or the seller. A seller’s realtor (or a listing agent) markets the seller’s property, helps the seller find a suitable buyer for the property, and makes an offer to a potential buyer. A buyer’s realtor helps the buyer find the right property to invest in and negotiate with the seller’s realtor.
A title insurance company mutually represents both the buyer and the seller and makes sure that the property is clear to sell. A title insurance company conducts title search of public records on the property, examines the survey, and discloses any title defects such as undisclosed lines, unpaid taxes, erroneous public records, or easements. A title insurance company provides title insurance to protect the lender’s financial interest in the property (lender’s insurance) or to protect the buyer’s purchase price for the property (buyer’s insurance) which provides coverage for any defects that may be discovered and become an issue for the insurance holder in the future. A title insurance company also handles the escrow accounts and manages deposits and withdrawals including honest money, escrow fees, realtor or broker fees, taxes, and the final payment to the seller at the closing.
The title insurance company commonly requires a recent survey from the seller. If the seller does not have a survey that is acceptable to the title insurance company, a property surveyor may be hired by either the seller or the buyer depending on the terms of the commercial real estate purchase contract. A property surveyor visits the property, maps out the property boundaries, verifies any structures within and near the boundaries, and prepares a survey.
Buyers commonly finance their commercial real estate purchases. The lenders typically require before approving a loan to the buyer, a copy of the commercial real estate contract executed by the seller and the buyer and other documents such as internal documents approving the purchase of the property, if the buyer is an entity.
A commercial real estate contract is a complex agreement and includes many important terms and conditions. An attorney can add value to the client as follows:
A seller’s attorney can protect the seller’s interests by drafting a commercial real estate contract with terms favorable to the seller. A buyer’s attorney can protect the buyer’s interests by thoroughly reviewing the terms of the commercial real estate contract drafted by the seller’s attorney and helping the buyer understand his/her rights and obligations under the contract. The seller’s attorney and the buyer’s attorney will try to negotiate with each other for fair and favorable terms for their own client.
In addition to the commercial real estate contract, there are many more documents that will be required by the seller, the lender, and the title insurance company. These documents may include a certificate of corporate resolution authorizing the sale of property, special warranty deed, shareholder’s or board of director’s resolution, seller’s affidavit, certificates of incumbency, etc. An attorney can prepare such documents and thoroughly review the documents prepared by the opposing counsel.
An attorney can guide the client through the closing process by keeping the client on schedule for any deliverables. An attorney directly speaks with the opposing counsel and the title insurance company to solve any issues, reschedule any important due dates, or amend the commercial real estate contract as needed.