While many of the basic tenets of buying and selling real estate are similar between commercial and residential properties, there is a huge difference between commercial and residential real estate transactions. Any real estate deal has its share of risk, but commercial real estate transactions involve a far greater level of potential liability exposure than a residential real estate purchase and the law takes a neutral approach to it’s treatment of commercial transactions.

Is that because those making the deal are supposed to be ‘smart enough’ to know what they are getting into? Perhaps, but it’s more likely assumed they have a lawyer who specializes in commercial real estate on their side protecting their interests and sometimes those lawyers advise their clients to get out of the transaction for their own safety.

Commercial Real Estate Transactions Represent More Risk

For the most part, everyone understands what goes into a typical family home, but we can’t say the same for any piece of business property. Due to the wide range of businesses, commercial properties may come with all kinds of liens and title problems.

  • There may be concerns over the presence of hazardous materials and the property’s zoning requirements. The city does not care who owns the property and commercial property owners assume the liability of the property.

  • There may be questions about the suitability of the property’s location with regards to its surroundings and the potential buyer’s business needs. The city’s laws will have to be reviewed by an experienced lawyer so you know before you buy.

  • There are also mandatory disclosures required in residential real estate transactions that may not be required in a commercial real estate transaction – a fact that can leave the purchaser or lessee of a commercial real estate property at risk.

Further, most commercial real estate purchases do not come with the built-in consumer protections that are inherent when you purchase residential real estate. In fact, residential home buyers are given far greater protection against abusive lending practices than are business owners.

The process of buying and selling commercial real estate requires various legal assessments to ensure that the new buyer is not taking on eventual liability. If your lawyer is recommending that you back out of the deal, there’s a reason.

Bad Commercial Transactions Happen

Commercial real estate deals go wonky due to a wide range of reasons – many of which are due to outside forces, including market conditions, changes in lending guidelines, lawsuits, zoning disputes, township requirements and environmental issues.

While lawyers and brokers make decisions about various matters, the ultimate decision maker is the client. After all, it’s your money. The job of any lawyer is to advise their clients on the potential risks so they can make an informed business decision about whether or not to go forward with a commercial real estate transaction.

A Commercial Real Estate Lawyer’s Role is Advisor

Because the commercial real estate transaction process is very different – and the level of risk is higher than with a typical residential real estate transaction – your lawyer should be able to give you a clear roadmap of the potential concerns and possible scenarios.

Consulting an experienced commercial real estate lawyer in your area may kill the deal, but wouldn’t you rather be safe? If ‘deal killer’ comment is thrown about consider the source – it’s usually coming from brokers who only get paid when the transaction closes.

 

About the author

Matt Faustman

Matt Faustman

Matt is the co-founder and CEO at UpCounsel. Matt believes in the power of online platforms to change antiquated ways of life and founded UpCounsel to make legal services efficiently accessible. He is responsible for our overall vision and growth of the UpCounsel platform. Before founding UpCounsel, Matt practiced as a startup and business attorney.

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