Written by attorney Cameron Royal Kelly

The Attorney's Role in the Purchase of Investment Real Estate.

Finding the Right Advice in Your Commercial Real Estate Purchase

Purchasing commercial or investment properties is a complicated process that begins with your evaluation of which property is right for you. Depending on your area of expertise or risk tolerance, this might range from residential rental properties, to residential or commercial development, or more complicated purchases involving the purchase of a business. While it is certainly possible to purchase commercial property without retaining an attorney, an experienced attorney can help navigate the process and provide you with the guidance to protect your investment. Here are a few of the areas that an attorney can assist with in your real estate purchase.

Title Issues in Real Estate Purchases. Your lender will require that they have adequate protection, and you should too. Having an experienced title company, and experienced representation can be the difference between having this protection or not. Prior to closing, your attorney should review the title to your property to make sure that there are no defects or encumbrances that will effect your proposed use.

Encroachments and Surveys. Many commercial real estate transactions will be accompanied by a survey of the property to be purchased. The survey will help to discover whether improvements on the property are properly located, whether zoning regulations have been complied with, and whether there are any encroachments of neighboring properties onto the subject parcel. Used properly, the survey can help identify problems before the purchase when it is easier to seek correction of the problem through the seller.

Tennant Rights and Assignment. An existing tenant on the property can often be a benefit to a prospective purchaser, but creates issues that must be dealt with prior to closing. For example, lenders will often seek to have priority over the interest of the tenant. Purchasers also need to protect their own interest with respect to the tenant by making sure that the tenant’s lease is properly assigned, and obtaining tenant estoppel agreements, which among other things, will detail the current status of rent payments, and security deposits.

Choice of Entity and Shareholder Risk. Choice of entity is an important consideration in any commercial purchase. The entity you choose could affect 1) your personal liability, 2) the tax consequences of the purchase, and 3) your ability to use more complicated ownership structures. By planning the choice of entity in advance, many potential problems can be avoided.

These are only a few of the issues that may need to be considered in an investment or commercial purchase. Depending on the nature of the transaction, the scope of an attorney’s review may vary widely. If you are purchasing real property, contact an attorney near you to determine whether representation would be beneficial. If you have questions regarding the content of this article, please contact Cameron Kelly at 651-705-6277.

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