Commercial Purchase – I am buying a commercial property, which might have mixed uses, and have questions

Purchasers of commercial property must perform a vast amount of research to insure that the property is free of liens and encumbrances, that all uses are lawful and may continue to exist, that all terms of the tenants are known, that all security deposits are segregated, and that the rental income represented is in fact the rental income received. Yet, this is just the beginning. More importantly, a purchaser must be assured that they understand and have reviewed all service and advertising contracts. These include trash, extermination, maintenance, management, commission agreements, billboards, vending, and union contracts.

If possible, a purchaser should also check with the municipality to make sure that the plans on file are identical to the structure he is buying, and if not, that any modifications have likewise been approved by the municipality. I would recommend that all of this be done before signing the contract, although some Sellers mandate that you sign now and will give you a 30 day right of cancellation for due diligence reasons. Depending upon the size of the building, you might want to extend that 30 day cancellation to 45 or even 60 days. Where there is an environmental issue, or a potential issue with the municipality, it is not unreasonable to request a further extension. Due diligence is just that. As the purchaser, you should make sure that you are aware of everything you can be aware of pertaining to the property you are purchasing.

Assuming you sign the contract first, you will receive the 30 or 60 day due diligence period in which you are given time to verify all that is listed above, as well as your objectives in selecting this property and determine if this property does in fact meet those objectives. During this period, you will need an experienced team to assist you in verifying the condition of the property, its lawful use (and the lawfulness of your planned use), and any potential liability issues. The engineer should verify structural integrity, and that all plumbing and electrical are up to code.

Other issues you would want to confirm include any current litigation or potential claims, as well as any planned changes to adjacent structures that might negatively effect your property=s value. It is during the due diligence period that you can simply walk away from the property, or convince the seller that the value of his property is somewhat less than was agreed upon based upon the results of your due diligence. The seller would then agree upon a reduced purchase price or refund your down payment.

You should request as many documents as the Seller will produce, including but not limited to the following: the last 3 years annual Profit and Loss Statements and Balance Sheets, copies of any payroll records if employees will have to be assumed, as well as a physical inventory of furniture, fixtures, supplies, and equipment included in the sale. Copies of recent engineering reports and environmental test results should also be requested, as well as copies of any recent survey, architectural or engineering plans.

Our Platinum Property Transfer System enables you to buy commercial property without the stress and delay normally associated with commercial real estate transactions. We permit busy entrepreneurs and investors to do what they do best, often enabling them to earn many times our legal fee by concentrating on their businesses. You will receive regular updates in a systematic and organized manner from your personal concierge. If you are financing your purchase, we will work with your lender to clear all conditions required for them to fund your loan. After the closing, we will deliver to you copies of all documents signed at the closing in a professionally sealed binder.

John has written an e-book, Big Apple Guide to NY Real Estate Transactions. It is available to answer questions that you may still have. Please provide your first name and email in the box below to download it now. We are attorneys and not salespeople. Nobody will ever call. There is no obligation. John simply asks that you email him to tell him what you liked or did not like about the book.