Fait Accompli: When Purchasing Commercial Real Estate, Don’t Wait Until Closing To Get an Attorney Involved
When opportunity knocks, it can be hard to tell it to wait patiently. No one wants to let a potentially lucrative deal slip through their fingers. But this type of “FOMO” (fear of missing out) may lead to hasty decisions and ill-considered commitments that can turn a once promising opportunity into a financial and practical catastrophe. Such is the case when those looking to buy commercial real estate enter into a purchase agreement without consulting with an attorney before signing on the dotted line.
Too often, however, putative buyers of commercial real estate, especially those who rarely enter into such consequential transactions, get an attorney involved only after signing an agreement and barreling ahead toward closing. By that point, it may be too late to effectively protect the buyer’s interests and money. Here is why you should never put the contractual cart before the horse when looking to purchase commercial real estate, and why the first call you should make when opportunity knocks is to your lawyer.
You’re Not Buying a House
Plenty of people purchase homes and other residential properties without involving an attorney. While that choice can be ill-advised and lead to unwanted risks and consequences, the relative standardization of residential real estate sales contracts keeps those potential downsides relatively contained.
But commercial real estate deals are far more complex, customized, and detailed, implicating a host of legal issues that simply aren’t present in residential transactions. The purchase agreement will contain voluminous language that may be difficult to understand, but easy for an enthusiastic buyer to gloss over as they hastily flip to the signature page. These include clauses related to due diligence, deposit obligations, zoning compliance, environmental liabilities, significant default rights, financing contingencies, title issues, and more.
An attorney can ensure the buyer fully understands all terms and conditions of the agreement and address any potentially problematic provisions that could create legal exposure or financial loss before the buyer passes the point of no return. For example, a contract may contain vague language about repair obligations or shared maintenance costs, which could leave the buyer responsible for unexpected expenses down the line. An attorney can clarify these ambiguities, propose modifications, and ensure the buyer’s obligations are fair and clearly delineated.
Leveling the Playing Field
The seller and its attorney typically prepare the initial draft of a commercial real estate purchase agreement. It is, therefore, unsurprising that such documents are skewed in favor of the seller and its interests, including terms that limit the seller’s liability, accelerate timelines, or impose penalties for delays. Without an attorney’s intervention, a buyer may unwittingly agree to these unfavorable terms.
Attorneys can negotiate more favorable terms for the buyer, such as extended due diligence periods, clearer representations and warranties, more equitable default rights/obligations, favorable indemnification provisions, and reasonable timelines for closing. They can also help the buyer secure contingencies—such as the ability to cancel the deal if financing or zoning approvals cannot be obtained—thereby reducing the risk of financial harm.
What Happens if Things Go South
Even the best-planned commercial real estate transactions can hit the rocks and lead to disputes. These may involve the property’s condition, the seller’s representations, contract performance, or third-party claims. An attorney can help prevent disputes through clear, enforceable contract language and, if necessary, resolve conflicts through negotiation, mediation, or litigation.
In the event of a breach of contract or other dispute, having an attorney involved from the outset provides continuity and context that can be invaluable in achieving a favorable outcome.
Purchasing or investing in commercial real estate is no small undertaking. As attractive as the upsides may be, failing to consider and address potential downsides and lacking the background, knowledge, or resources to do so creates unnecessary risk and exposes the buyer to significant losses. By working with an attorney at every step, a buyer has the best chance to answer opportunity’s knock without the door hitting them on the way out if things don’t materialize as hoped.