What Do Small Business Owners Need to Know About Real Estate?

Obviously, the answer to that question depends heavily upon the type of business.  However, regardless of industry, most small business owners have to operate from a physical location.  Some small business owners are fortunate enough to operate from home, but many are going to be confronted with issues relating to leasing or purchasing real estate at some point in their careers.

A commercial lease can be an extremely complex document at times.  For example, everyone expects a lease to set forth the length of the term and the amount of rent that’s payable to the landlord.  However, who pays for repairs, improvements, etc.?  What about taxes?  Does the landlord have any security in the tenant’s assets for unpaid rent?  Does a tenant owe rent for the entire term even if they’re evicted years before the term was set to expire?  Who pays for insurance?  Does the tenant get any time to cure default?  Alternatively, could the tenant be removed immediately?  Perhaps the tenant expects to have an option to renew the lease or purchase the property at the end of the term?  Can the tenant be forced to leave if the landlord stops paying its mortgage?

A purchase of real estate can likewise be an involved process at times.  Each real estate transaction starts with a purchase agreement entered into between the seller and the buyer.  The complexity of that agreement depends significantly on the type of property and type of transaction that’s being negotiated.  There may be property conditions that need to be addressed.  What about environmental issues?  Perhaps the purchase price needs to be allocated a certain way for tax purposes?  Who pays for closing costs?  What if some of the money has to be paid over time?  How should those payments be structured?  Is a bank involved to finance the deal?  Is there anything about the transaction that will make banking difficult?

For all those reasons, negotiating a commercial real estate sale can be complicated – and that’s only step number one.  Once the contract is signed, the parties might have to deal with inspections, surveys, financing contingencies and other similar preliminary issues, depending upon circumstance.  In addition to that, every transaction will involve a title company’s preparation of title work to, among other things, identify whether and to what extent the title to the property has issues unsatisfactory to the purchaser.

Regardless of whether it’s a purchase/sale or lease transaction, a small business owner will undoubtedly be involved with real estate in some capacity during his career.   When that time comes, the issues raised above (among others) will likely be up for discussion.  We’re here to make sure our small business clients understand the opportunities and consequences presented in those discussions.

–        Mark Coriell   

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