By Howard J. Weiss
Unlike residential transactions that typically use short, pre-printed forms prepared by an Association of Realtors, commercial transactions are more complex and generally involve lengthy contracts prepared by attorneys. If you’re thinking about entering into a commercial real estate transaction without an experienced attorney, ask yourself a simple question: Would you venture into uncharted waters without a guide? Whether you’re a buyer, seller, landlord or tenant, an experienced commercial real estate attorney can help you navigate through the paperwork and assist you with avoiding pitfalls that not only cost you time and money, but also subject you to legal liability.
The commercial real estate journey typically begins with a letter of intent, commonly referred to as the LOI. While at first glance, the LOI may seem innocuous, this document is setting the stage for further negotiations (or lack thereof) once it is signed. I have often seen parties and their counsel refuse to further negotiate a deal point by claiming that “it wasn’t included in the LOI” or conversely that “it was included in the LOI and will not be changed.” The lesson to be learned is that you must carefully consider the contents of the LOI and make sure that any matters that you consider material are negotiated and included in the LOI before it is signed.
After finalizing and signing the letter of intent, counsel for one of the parties generally prepares a draft purchase agreement or lease. In some instances, a broker may prepare these documents using a form created by their brokerage or a national trade association. Regardless of whether the draft agreement is prepared by an attorney or a broker, there are numerous legal issues that must be evaluated, discussed and resolved before proceeding forward. While you may be able to identify certain issues based upon the language in the contract or other documents you are provided, an experienced attorney can help you identify important legal issues that you may not even realize exist. Sometimes it’s not what’s contained in the documents that may be problematic, but rather what’s not contained in the documents and could be included for your protection. Without an experienced attorney, you may find yourself at a distinct disadvantage when trying to identify these issues and their resulting ramifications.
Finally, it’s imperative that the contractual provisions are carefully crafted to avoid any ambiguity regarding the rights and obligations of the parties to the transaction. For example, when drafting a purchase agreement there is typically negotiation over when the buyer’s earnest money becomes nonrefundable and whether the buyer’s failure to send notice prior to the expiration of a due diligence period constitutes approval or disapproval of their feasibility. If you are a buyer with $50,000 of earnest money at risk, wouldn’t you want to make sure that all parties are on the same page regarding the circumstances under which you are entitled to receive a refund of your deposit? Remember, the purchase contract will also serve as escrow instructions to the title company: you need to make sure those instructions are crystal clear. As Benjamin Franklin said, “An ounce of prevention is worth a pound of cure.” Engaging an attorney to assist you with drafting a contract will be significantly less expensive than hiring an attorney to represent you in a lawsuit.
The next time you embark on a commercial real estate transaction, contact an experienced attorney to help guide you through the process. At the end of the day, it will be money well spent. n
Howard J. Weiss is a partner at Nussbaum, Gillis & Dinner P.C. in Scottsdale. His practice is focused on counseling clients on the purchase, sale and lease of commercial real estate, as well as business transactions and entity formation. The firm also handles construction law, estate planning, probate, administrative and regulatory law, commercial litigation and bankruptcy. Weiss may be contacted at (480) 609-0011 or by email at firstname.lastname@example.org.
This article is intended for informational purposes only, and should not be construed as providing legal advice. If you have any questions regarding the topics discussed herein, you are advised to contact an attorney.