Frequently Asked Questions

Are commercial real estate transactions really more difficult than residential?

Generally, yes.  There are issues that exist in a commercial real estate transaction that simply do not exist in residential transactions such as environmental concerns, tenant security deposits, rent prorations, construction issues, the physical condition of the building is more complicated and reciprocal easement rights exist.  These are just a few reasons commercial real estate transactions are more complicated.

Are environmental issues still a concern?

Of course, if not only for the purchasers’ concern, but the lender will not lend the purchase money knowing their collateral could be contaminated.  Simply put, you need to take the potential for environmental contamination seriously.

What is the best way to value commercial property?

The best advice we give is to hire an appraiser to appraise the property.  The appraiser will look at many factors of the property including the strength of the tenant, rent amount, comparable values and the cost to reconstruct a similar property.  Most importantly, commercial property is valued on its income generated from tenants.

What is the difference between commercial real estate and construction law?

Commercial real estate is a general term that lawyers use to include the purchase or use of industrial property, office space, retail space, and the construction of buildings.  If construction is part of your commercial development, make sure you hire attorneys that have experience with construction law.

My tenants are not paying rent - should I sue them, even if they are deadbeats?

When you sue a tenant for the non-payment of rent, you asked the court for two things – first, possession of the premises so you have the legal right to take back the premises, and secondly, for past due rent.  Therefore, you will probably need to file an eviction suit known as a “forceable detainer” in court to be able to take back possession of the property.  As for collection on the past due rent, often times is very easy to get a judgment for past due rent, collecting on the judgment is a whole other matter.

What are the most important things to worry about in construction law?

It is difficult to summarize the multitude of issues that go on with construction to determine which are the “most important” issues.  Construction projects have multiple parties involved with different interests.  For example, the owner may not necessarily be the developer.  Then, the developer may hire a general contractor to build the project and the general contractor may hire subcontractors in various trades.  In that simple hypothetical, there are four parties trying to allocate risk and responsibility.  As you can tell, the documentation necessary to properly allocate that risk and responsibility can be extensive.

Are commercial mortgages assumable?

It depends on the mortgage documentation.  Generally, you will find a “due-on-sale” clause in most mortgage documentations which indicates that the mortgage is not assumable.  However, absent that language in the mortgage document, there may be language that provides a mechanism for transferring the mortgage to a purchase under certain circumstances.  You need to follow the directions in the mortgage documents, which will always include obtaining the lender consent, in order to transfer the mortgage loan to the purchaser.  Lastly, watch out for “prepayment penalties.”  There are times these prepayment penalties are embedded in the documents to prevent early payoff. 

If I am a tenant in a shopping center, do I have any risk if my landlord loses the building in a foreclosure?

You may have some risk.  As you will see in the lease, your lease is subordinate to the landlord’s lender.  If the lender forecloses on the landlord, the lender could terminate your lease.  A way to avoid this as part of the signing of the lease is to get a third party agreement between you, as tenant, the landlord, and the landlord’s lender, called a “subordination and non-disturbance agreement.”  This agreement is a covenant signed by the lender that if the landlord defaults on its mortgage payments, the lender will respect your mortgage.

Can I buy a property if the foreclosure process has begun?

Yes, but be prepared because it is difficult.  At this juncture, you have probably already started some negotiations with the property owner that has not been documented.  If you do have a contract with the seller, try to close on that contract to pay off the lender.  If the proceeds are insufficient to pay off the lender, you will need to follow the lender’s rules for “short sale” closings.

If the foreclosure is far enough along, you may need to contact the lender with value proposal, in writing, to purchase the property.  Be prepared to eventually talk to the court appointed receiver to consummate your transaction.  It takes an extraordinary amount of due-diligence effort and patience to close these deals.

If I am going to be signing a lease, are the utilities my concern?

Generally, utilities like electric and gas, are personal to the user and generally terminated when the previous tenant leaves and you need to set up your own account and have those utilities turned on for your benefit.  However, water “runs with the land” and you need to investigate how you will be billed for water.  Either the building and shopping center get one bill for water and the landlord will allocate, based on a set of rules and regulations of the shopping center, or pursuant to the terms of your lease.  Beware of other users in the shopping center.  If you run an office and your neighbor is a Laundromat, you do not want to pay pro-rata portion of the water usage for the shopping center.