Too Good to be True? Common Pitfalls in Commercial Real Estate Purchases

For business owners, expanding or moving operations can be fraught with a variety of costs and commissions. In the interest of saving money in the short term, it may be tempting to forego hiring an attorney to advise on the transaction. But don’t give in; hiring an attorney just might save you money in the long run. Whether you go with legal counsel or not, keep an eye out for these pitfalls.

Here are some examples of how real estate transactions can go bad:

Buyer Beware –

If real estate is below market value, there is a reason! In commercial deals, the general rule is “buyer beware”, so it is in a buyer’s best interest to find out what that reason is before committing to the deal. For example, if a buyer thinks he or she can put up cash for a lot and then build to suit, think again. The land may be significantly marked down in price because it is a protected wetland or has significant environmental issues, either of which may make developing the land nearly impossible or cost prohibitive.

Zoning & Land Use –

Perhaps a buyer wants to purchase a turn-key commercial building. A business still cannot just move in and set up shop, though. Nearly every Michigan municipality requires an inspection to determine zoning compliance. Not all businesses can be operated in every “zone”. There are many possible zones, including residential, multi-family residential, commercial, industrial, light industrial, and more. Each of those zones has an exclusive list of permitted business types. The process to seek an exception to the zoning rules can be lengthy and expensive. A business in this trick bag may end up with its fate in the hands of a variety of local government boards and committees.

Purchase Agreements –

To the untrained eye, purchase agreements may appear similar. However. slight variations can significantly reduce or increase a buyer’s risk. Based on an assessment of a transaction’s unique circumstances, a skilled real estate lawyer can make sure a buyer’s interests are represented in the negotiating and drafting process. One way is by making sure the period to inspect the property is long enough. This is called the “due diligence” period. During this time, a buyer wants to make sure the land or building can be used for its intended purpose. Thirty days might be long enough for some properties, yet for others, 180 days (or longer) is more appropriate.

In any of the above situations, an unwary buyer may end up stuck with property that is virtually useless to his or her business. Don’t wait until after the fact to find out that a great deal was really just a big bust. Make the smart business investment, and contact my firm to guide you through your commercial real estate purchase.

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