Key Considerations in Commercial Real Estate Purchase Agreements
Buying commercial real estate can involve a substantial financial commitment. Before you sign a purchase agreement, you need to understand what you are paying, what must happen before closing, what investigation rights the agreement provides, and what options you may have if a problem arises. With so much money and planning involved, it is understandable to have concerns about agreeing to terms that could create unexpected costs or complications later.
At Curiale Hostnik PLLC in Puyallup, Washington, we help buyers and sellers draft, review, and negotiate commercial real estate purchase agreements. We can identify problematic terms, clarify each party's obligations, and address property-related issues before the transaction moves forward. Contact us now to schedule a consultation.
Purchase Price, Earnest Money, and Payment Terms
The agreement should state the purchase price and explain how and when you must pay it. If you need to provide earnest money, the contract should identify the amount, deposit deadline, who will hold it, and when you may receive it back or risk forfeiting it.
Some transactions involve more complex payment arrangements based on financing, development approvals, or other negotiated conditions. By clearly defining these terms, you and the other party can reduce the risk of disagreements over payment or other obligations before closing.
Due Diligence and Property Inspections
A due diligence period can give you time to investigate the property and decide whether it meets your needs and intended use. Depending on the transaction, you may inspect the property and review surveys, leases, service contracts, permits, property records, financial information, and land-use issues.
The agreement should state how much time you have to complete permitted investigations and what you can do if you discover a problem. Our real estate attorneys can review these provisions, help you identify matters that require further investigation, and address appropriate due diligence protections in the agreement.
Financing Contingencies
Many commercial purchases depend on financing. If you need a loan to complete the purchase, a financing contingency can make your obligation to proceed dependent on obtaining financing that satisfies the conditions in the agreement.
The agreement may set deadlines for you to apply for financing, obtain lender approval, and notify the seller if you cannot secure the required financing. You should know when the contingency expires and what will happen to your earnest money if you cannot obtain financing.
Title, Easements, and Property Restrictions
A title report or commitment may identify liens, easements, covenants, taxes, and other recorded matters affecting the property you plan to purchase. An easement, for example, may allow another person or business to use part of the property for access or utilities. Other restrictions could affect how you use the property, including its construction, parking, access, or development.
A survey or additional investigation may also reveal boundary, access, or encroachment issues that title documents alone may not show. We can review these title matters alongside your purchase agreement, identify concerns that may affect the transaction, and help you negotiate how to address them before closing.
Zoning and Intended Use
A commercial property may not be suitable for your plans if local land-use rules do not permit your intended use. Before you commit to the purchase, you may need to determine whether you can legally use the property for your planned business, development, or investment.
When you need a variance, conditional use permit, or other government approval, the agreement can make obtaining that approval a condition of proceeding. We can help you evaluate how zoning and approval requirements affect your purchase and negotiate terms that address applicable deadlines and what happens if you cannot obtain a required approval.
Environmental Conditions
Environmental concerns can create high costs and may affect your ability to develop, finance, or use commercial property. Depending on the property's history, you may begin your environmental due diligence with a Phase I environmental site assessment and pursue additional investigation or testing if the assessment identifies potential concerns.
The purchase agreement can give you the right to conduct environmental due diligence and specify what you can do if the investigation reveals a significant issue.
Seller Disclosures, Representations, and Warranties
Washington law generally requires a seller to provide a disclosure statement in a commercial real estate sale unless the buyer expressly waives it or the transaction is otherwise exempt. However, if the seller would answer “yes” to any question in the environmental section, the buyer cannot waive receipt of that section.
The statutory form asks about specified matters involving the property, including certain title and legal issues, structural conditions, systems and fixtures, and environmental concerns. The seller provides these disclosures based on actual knowledge, so you should not use them as a substitute for your own inspections and investigation.
The purchase agreement may also contain negotiated representations and warranties concerning matters such as authority to sell, existing leases, litigation, or legal compliance. We can review these provisions to help you understand what each party represents, whether those representations continue after closing, and what the agreement allows if a representation proves inaccurate.
Existing Leases and Tenant Issues
If you are buying a commercial property with existing tenants, you may need to examine leases, rent obligations, renewal rights, security deposits, tenant improvement obligations, and other agreements affecting the landlord-tenant relationship.
The purchase agreement should address how the parties will handle leases and related obligations at closing. Depending on the transaction, you may also want to obtain tenant estoppel certificates or other documentation that confirms important lease information.
Closing Conditions, Costs, and Prorations
A purchase agreement should explain what you and the other party must do before closing. Conditions may include delivering required documents, satisfying contingencies, resolving specified title matters, or completing other agreed obligations.
The agreement should also state who pays particular closing costs and how the parties will handle applicable prorations. Property taxes, rents, utilities, and other amounts may need to be divided between you and the other party as of the closing date.
Default and Remedies
A commercial purchase agreement should explain what can happen if you or the other party fails to meet a contractual obligation. Your available remedies may depend on the agreement, applicable law, and the circumstances surrounding the default.
For example, the agreement may state whether a seller may retain earnest money after a buyer default or what remedies you may have as a buyer if the seller fails to complete the transaction. It may also require notice or give a party time to correct certain defaults. As part of our contract review services, we can review these provisions before you sign so you understand what could happen after a default and which remedies the agreement provides.
Assignment Rights
You may plan to buy the property through a newly formed company or later transfer your contractual rights to an affiliated entity or another party before closing. The assignment provisions in your purchase agreement can determine whether you have that option.
The agreement should state whether you can assign your rights, whether you need the seller's consent, and whether you remain responsible for any obligations after an assignment.
Discuss Your Commercial Real Estate Purchase Agreement With Curiale Hostnik PLLC
A commercial real estate purchase agreement can affect how you investigate the property, what conditions you must satisfy before closing, how you and the other party allocate risks, and what options you have when problems arise. Reviewing these terms before you sign can help you identify concerns while you still have an opportunity to address them. You can also enter the transaction with a clearer understanding of what you and the other party are expected to do before closing.
At Curiale Hostnik PLLC, located in Puyallup, Washington, we represent buyers and sellers in Puyallup, Tacoma, and throughout Pierce County, including Gig Harbor and University Place. Our team reviews and negotiates commercial real estate agreements to help you understand your obligations, address potential concerns, and protect your interests throughout the transaction. Call us now to schedule a consultation.