Legal Considerations When Selling Commercial Real Estate

 Posted on August 17, 2022 in Real Estate

The first step in the sale of commercial real estate property is the execution of the Commercial Sales Contract. The Mainstreet Organization of Realtors is the main (but not the only) contract for commercial real estate deals.

Attorney Review Period

The first step in the sale of a commercial real estate purchase or sale is negotiation of the attorney review period. The attorney review period is Paragraph 6 of the Commercial Sales Contract. Paragraph 6, Attorney Review Period, is the ability of either the buyer or seller’s real estate attorney to approve the contract; disapprove the contract; and/or propose modifications to the contract except for purchase price. Business negotiations must be finalized within ten business days after acceptance of the contract by the Seller(s).

In most buyer’s attorney’s attorney review contract, there is a phrase about extending the attorney review period until an agreement is reached or either party disapproves of the contract. Therefore, the 10-business day deadline is often repealed.

Inspection/Environmental Site Assessment

The contract is contingent on the buyer inspecting the commercial real estate property. Similarly, to a home inspection for a residential real estate contract, the inspection and environmental study makes sure there is not contamination or other issues, which would affect the marketability of the property. An Environmental Site Assessment or otherwise known as an “ESA” is conducted during the timer period, which is considered the buyer due diligence period.

The Inspection/ESA is considered a buyer due diligence time because the buyer can have a licensed professional inspect the property. The ESA takes into consideration the proposed used of the property and whether there are past or current hazardous substances. The purpose of the ESA is to determine whether the property may be used for the buyer’s intended purpose.

Title Search and Title Liens

After Gateville Law Firm receives the Commercial Sales Contract, we refer the commercial real estate agreement to a title company. The title company will perform a title search, which will examine the ownership issues related to the subjected property. The title search is designed to see what mortgages are outstanding along with any municipal code violations; outstanding tax obligations and/or other issues, which impact the sale of the real estate property such as an easement.

At Gateville Law Firm, our real estate law firm has over 28 years of title insurance experience on our real estate team. This is important for sellers and buyers alike because title insurance and title liens have a significant impact on the purchase and sale of commercial real estate property. The benefit of a team of title experts is the ability to resolve outstanding title issues and understand the encumbrances, which impact the property. The Seller’s Real Estate Attorney must resolve these encumbrances prior to the real estate closing.

Buyer’s Financing

Most buyers seek Small Business Administration financing, which takes around 90 days from the beginning to the end of the process. Buyers often will use SBA loans to finance real estate and business transactions. Most buyers will set up a separate LLC to purchase the building while their business operations will operate under a separate legal entity other than their building ownership. Often, the buyer’s business will lease the premises from the buyer’s building ownership such as an LLC, which is established for asset protection of the building or commercial property.

Outstanding Lease Issues

Buildings often have tenants, which must be informed of the sale of commercial property. Often, the Sellers will assign their commercial leases to the new buyers. After closing, the new buyers will be updated on the new ownership team of the commercial property. Security deposits must also be accounted for and transferred over. The Seller will give the Buyer credit for security deposits at closing on the closing statement.

Real Estate Tax Prorations

In Illinois, commercial real estate property is accessed one year behind such as 2022 real estate taxes will be collected in 2023. The commercial sales contract pro-rates real estate taxes at 105 percent of the last fully ascertained tax bill in the county where the property is located. Thus, the real estate purchase agreement assumes a slight increase in the real estate taxes. However, each commercial property is different, and an expert real estate team is necessary to protect your commercial investment.

Kendall County Commercial Sale Attorneys for Property

If you are buying or selling commercial real estate in Oswego, Yorkville, Plano, Plainfield, Joliet, Shorewood, Aurora, Montgomery, or nearby areas, contact us at 630-780-1034. The Real Estate Team at Gateville Law Firm provides experienced real estate legal acumen and good customer service. The sale of commercial real estate property is a significant investment and will have a substantial impact on your family and business’s financial future.