What is the Scope of Commercial Real Estate?
Commercial real estate (CRE) broadly includes properties used for business activities that provide workspaces or generate revenue through commercial operations. These properties can vary in size and purpose, ranging from small storefronts to expansive complexes like shopping centers or malls. Mainly, commercial properties include:
- Office spaces
- Hotels and resorts
- Retail spaces
- Restaurants
- Healthcare premises
- Industrial properties
- Multi-family properties for rental income
Any property that can generate revenue through leasing or holding and reselling can qualify as commercial real estate. Attorneys from a law firm in Virginia say that transactions involving such properties can be complex. As a business owner, familiarize yourself with legal real estate issues to be well-prepared when buying CRE.
How Can I Navigate Commercial Real Estate Transactions?
Purchasing commercial property entails several legal issues, and being at par with them is crucial to avoid potential pitfalls. Real estate attorneys in Warrenton provide insights into what steps you should take to enhance a smooth process:
Conduct Due Diligence
Due diligence is a detailed background check or review of the status of the commercial property to identify potential risks or liabilities. With the help of skilled real estate attorneys in Warrenton, you can assess the property based on the following crucial aspects:
- Financial status: The financial health of the business associated with the property can provide insights into its financial standing. Thoroughly review income records, debts and liabilities, and related financial statements to determine the viability of the investment.
- Legal compliance: Before entering a transaction, ensure the property complies with all relevant laws and regulations. Legal experts can check the property for any legal disputes, adherence to environmental regulations, and compliance with zoning laws.
- Property conditions: The property’s structural integrity, maintenance records, and potential environmental hazards are vital factors that could give you insights into its value and usability.
- Property and ownership: Before committing your money to buy commercial real estate, ensure the title is clear and marketable. This means the seller has the legal right to transfer ownership, and there are no encumbrances or defects in the title.
Conducting due diligence can be lengthy and complex. Your team of Warrenton real estate lawyers may engage other real estate experts, such as property appraisers, to help you uncover as much as you can about the property. The more informed you are, the more equipped you will be to decide before committing to the transaction.
Evaluate the Market Prices
Once you verify the property’s condition and status, conduct local research to familiarize yourself with the prevailing market rates for similar commercial properties. This step can make a significant difference, saving you from paying more than the property is worth.
Local real estate agents can provide market reports for deeper insights into the current market. If the property requires renovations, look into labor and material costs to get a clear picture of your expected overall expenditures.
Determine the Best Ownership Structure
The ownership structure of your commercial real estate is crucial because it impacts the degree of your tax liabilities. If you buy a commercial property under your name, it won’t be subject to corporate taxes.
However, you won’t be eligible for corporate tax benefits such as capital gains tax discounts or the ability to retain income and dividends. You’ll also be personally tied to the asset, which means you can lose your building if your business debt exceeds your ability to pay off the loan.
You could opt for a corporation, which is subject to high corporate and individual-level taxes. Organizing these can be complex, so ensure you have a tax specialist to help you navigate the intricacies.
A limited liability corporation would be a less stressful ownership structure. It provides an excellent middle ground for lower tax payments and legal protection. Warrenton real estate lawyers can help you weigh the pros and cons of each structure to arrive at the most suitable decision.
Draft a Purchase Agreement
A CRE transaction is legally binding and should be guided by the terms in the purchase agreement. Skilled real estate attorneys in Virginia can help you draft the contract, ensuring it complies with commercial property laws in the state to make it enforceable. The agreement is instrumental in opening an escrow account, along with your good-faith deposit.
Opening an Escrow Account
An escrow account is crucial in commercial real estate transactions, as it establishes trust between the buying and selling parties. A neutral third party holds the funds, ensuring they are only transferred when both parties are satisfied with the deal.
Given the large sums involved and the complexity of commercial transactions, escrow accounts have stringent and more detailed rules than residential property transactions. The complex paperwork involved may require the expertise of experienced real estate lawyers in Warrenton.
Securing Financing and Closing the Deal
If you intend to secure financing to purchase the property after negotiations, you must submit third-party reports such as environmental assessments and appraisals to the lender. Once everything is in place, the final step is to close the transaction. Closing the deal culminates with the transfer of keys and access codes from the seller to you.
Understanding Commercial Real Estate Transactions with the Help of an Experienced Real Estate Lawyer
Commercial real estate transactions can be complex, revolving around various legal nuances. While the journey can be overwhelming, it can also be fulfilling and rewarding if you have the proper knowledge, preparation, and support. Skilled real estate lawyers in Warrenton can guide you through the steps to achieve a favorable outcome.
The legal team at Ashwell & Ashwell, PLLC, can review your case and walk you through the various steps. We are dedicated to helping our clients achieve favorable results in their real estate transactions. Call us at 540-386-1277 to schedule a consultation.