The process of purchasing or selling commercial real estate has potential pitfalls that the savvy business owner should be aware of in order to secure a satisfactory and legally sound deal. Whether it is an expansion of an existing enterprise or the first big move for a business startup, commercial real estate transactions are complex and do carry risk.
Among the essential things to consider are:
- due diligence
- title examination and inspection
- compliance with state laws and local ordinances
- lease agreements
- lending arrangements
For the business owner or entrepreneur entering the Indianapolis real estate market, having a sound and experienced legal resource to assist with all contractual aspects of the process will help you to minimize risk while you pursue your goals.
Due diligence and letter of intent
When entering into a commercial real estate transaction, the business owner should follow certain steps that cover special considerations or negotiations. A letter of intent (LOI) or term sheet usually memorializes the preliminary buyer and seller agreement, which identifies the parties and their specific intentions. Special provisions are often included in the LOI that will also be in the formal agreement.
During the due diligence period, the purchaser will investigate all aspects of the property and the seller, which can be narrow in scope and length depending on the negotiating leverage of both sides, the structure of the transaction and the nature of the real property. Due diligence will cover:
- title and survey
- service contracts, management agreements and leases
- engineering and environmental factors
- zoning regulations and use compliance
Negotiating terms and conditions
There are many important aspects of any purchase and sale agreement that all parties should negotiate. Representations and warranties lay out the risk factors and liability or indemnification obligations if a warranty is breached, or if there are representation inaccuracies. Other issues to settle are covenants for maintenance and repair or maintaining insurance and closing conditions, including financing, plus any prorations or credits.
There are also industry-specific considerations or local laws that all parties may also have to address. It helps to understand complexities and potential risk early in order to guarantee a satisfactory transaction.