What exactly is commercial real estate?

Broadly defined, the term commercial real estate can be used to refer to any dealing with real property in a business context. It could involve leasing out office space, owning an apartment complex, or selling real property along with and as part of the sale of a business. It might be industrial or agricultural property. It could even involve residential properties like apartment complexes or rental houses being held for business or income-producing purposes.

What are some of the common pitfalls involving a real estate business deal?

Regardless of whether you’re buying a home or a piece of investment property, there will always be risks involved. Your goal should be to lessen these risks as much as you can. Examples of potential problems that often lead to legal disputes include:

• Defects in title
• Debt service and lender requirements
• Mechanics liens
• Zoning and land use problems
• Market fluctuations
• Hazardous waste and environmental contamination

Real property interests are usually conveyed by a deed. In order to track how property changes hands, every state has a public record system where real property deeds are recorded, becoming a part of the public record system for everyone to see. In theory, this is a great system for keeping track of who owns what, but deeds are sometimes not recorded. Sometimes people sell or transfer partial interests in property. Lenders make loans against properties and record mortgages or deeds of trust that become liens that are of public record. Easements given to cross over or use property may or may not be of record. A judgment against a person can be recorded and become a lien against any real property that person owns, even without his consent. All these things can become a lien against title.

Should I hire a real estate broker?

There are many reasons why you should hire your own real estate broker. The broker or agent should have specific expertise in commercial real estate, and particularly in the area where you need it (for example, office space, retail space, industrial warehouse space, apartment complexes, agricultural land). Even if you’re just leasing property, a real estate broker may be invaluable. If he or she is good, an agent will go out and find property for you. The agent will also serve as an arm’s-length intermediary to negotiate on your behalf, which can be much more effective than you trying to negotiate the deal yourself.

What is a preliminary title report and how much attention should I pay to it?

A preliminary title report is a document prepared on real property once an escrow is opened, but prior to closing. It provides all kinds of information about the property that is essential for a buyer to see, such as how title is currently held and what kind of exceptions to title are currently of record (for example, easements, liens and encumbrances). The preliminary title report then becomes the final title report, on which title insurance is based. In addition to specific exceptions to title that will be listed on a title report, it will also list standard exclusions from coverage.

What is title insurance and why is it necessary?

Title insurance is nothing more than an insurance policy that provides assurance to interested parties that there is good and marketable title to the property being insured. However, this never means that title insurance guarantees perfect title. As with all insurance, there are a number of different types of policies and endorsements. There are also many exceptions to title, which all tie back into information in the preliminary title report.

Does it make any difference how I take title to commercial real property?

There are many issues that can arise with respect to how you take title to property, and especially so in a commercial context. If you take title as an individual, you may be exposing yourself to potential liability that you might want to try to avoid or at least minimize. You take title through a business corporation, but doing this could be disaster from a tax standpoint point. Sometimes, there may be other alternatives such as forming a limited liability company that you would own and control that, in turn, could lease the property to your business entity.

If I am buying real property for my business, do I need to get an environmental site assessment?

There are also different types of environmental site assessments. A “Phase I,” for example, generally involves an inspection of the property and review of various records, but it doesn’t involve any boring or drilling, or the testing of soil or water samples. These activities are usually done during the course of a Phase II assessment, which can be quite expensive.