A commercial real estate purchase in Florida has some complexities that make it quite different from buying or selling a home. Whether it is for the initial plunge of a new business or an expansion of an existing entity, it is important to know the steps and potential pitfalls of the process.
Not only is proper due diligence necessary, especially in examining title and inspection, there are also risks when entering into a commercial real estate transaction when the client is not aware of state laws or local ordinances, or does not consider liability or specific considerations during negotiations. It is essential for the business owner entering the Tampa real estate market to have sound legal advice to help with all contractual aspects of the process in order to achieve a satisfactory and legally sound deal.
The initial agreement and due diligence
Buying or selling commercial real estate is a multistep process that often involves unique considerations and negotiations along the way. The preliminary agreement between buyer and seller is usually memorialized in a letter of intent (LOI) or term sheet, which names the parties in the deal and outlines their intentions. There may also be specific provisions to be included in the formal agreement.
The due diligence period is essential for investigating some crucial elements:
- Title and survey
- Service contracts, management agreements or leases
- Engineering and environmental factors
- Compliance with use and zoning regulations
Negotiating the terms
The parties will then enter into negotiations of the terms and conditions necessary to achieve a satisfactory outcome as part of the formation of the purchase and sale agreement. Some of these terms include:
- Representations and warranties, which serve both purchaser and seller in laying out risk factors as well as clarifying liability and indemnification obligations if there are representation inaccuracies, or if warranties are breached
- Covenants that establish the obligations for maintenance and repair, maintaining insurance, and the release of the seller to enter into new contracts
- Closing conditions, which set the conditions for the buyer to acquire the property and to finance the purchase, as well as the contingencies for use
- Prorations and credits
Each transaction may be affected by industry-specific considerations, local laws, financing sources and many other factors. Understanding the process will prepare the business owner for potential risk and clarify their goals from the outset.