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Answers to Your Commercial Real Estate Law Questions

Has your business outgrown its current space? Are you considering moving to a more centralized location? Or will you launch your startup as soon as you find the perfect piece of Lancaster commercial real estate? Perhaps you plan to sell a piece of commercial property. Or maybe you want to purchase an investment property to use for rental income.

Regardless of your specific plan, a business real estate attorney can answer your commercial lease, title insurance, and real estate law questions.

At May, Herr & Grosh, we understand that any real estate transaction can be both exhilarating and stressful. However, with the support of a commercial real estate attorney with many years of experience in Lancaster County, you can make that next big buying or selling step with confidence.

Let’s start by answering some of the most commonly asked questions regarding commercial real estate transactions. And then, should you have further concerns, protect your interests with a call to our office.

A Commercial Real Estate Attorney Answers Your Questions

If you need a physical location to run your business—like an office, manufacturing facility, warehousing site, etc.—you’ll want to protect your interests before completing any sort of real estate transaction. A commercial real estate attorney can do that for you by reviewing contracts, drafting transaction documents, negotiating on your behalf, and ensuring that you know your rights. If you’re selling commercial property, that same commercial real estate attorney will educate you on seller disclosure requirements, so you’re protected against future litigation.

Commercial real estate clients often ask these questions:

What Is a Commercial Lease?

A commercial lease is an agreement that provides a tenant (the lessee) the business use of a property in exchange for payment of rent and other associated costs to the owner or property manager (the lessor). Terms can vary among commercial leases, and therefore, a commercial real estate attorney should review your particular agreement to ensure your interests are protected.

There are several common types of commercial leases:

  • Gross Lease: Also known as a triple net lease, the lessee’s rent payment includes rent and all associated costs—like utilities, taxes, maintenance, insurance, etc.—at a flat rate. A Modified Gross Lease requires that the lessee pay rent, utilities, plus an agreed-upon portion of general operating costs for the property.
  • Net Lease: A general commercial lease in which the actual rent payment is lower than that of a gross lease because it does not include costs that the tenant may be responsible for, like taxes, maintenance, utilities, and insurance.
  • Percentage Lease: A type of commercial lease generally reserved for lessees operating a retail location, it requires payment of base rent plus an agreed-upon percentage of the retailer’s gross sales. This type of commercial lease appeals to retailers because their rent payments are proportionate to their business’s performance.

As a landlord, when you work with a Lancaster commercial real estate lawyer from May, Herr & Grosh, we can help you determine what type of lease will benefit you while being attractive to potential lessees. Or, if you are searching for a commercial property to lease, we can ensure that the lease you’re presented with is legally sound and matches your needs for using the property.

What Are the Pros and Cons Associated with Purchasing Commercial Real Estate?

For some business owners, holding the deed for the commercial building that houses their operations is a profitable investment. Others feel that renting will be more beneficial for their business.

When you own your commercial property, you can make expansions or renovations without approval—and the additional equity will be yours at the time of sale. However, your business is also solely responsible for covering all costs associated with repairs and maintenance to that building.

Renting commercial real estate also comes with advantages and disadvantages. You will most likely not be responsible for repairs and maintenance (depending on the terms of your lease agreement), but you will have to wait for your property manager to respond and resolve any issues. You will also be limited in terms of improvements to the facility.

Are you wondering if renting or buying makes better financial sense for your business? Talk to a commercial real estate attorney at May, Herr & Grosh.

Should I Purchase a Commercial Property in My Name or My Business Name?

There are a number of considerations to make when deciding whether to purchase real estate for commercial use in your business’s name or your name. Liability is a big consideration, as is the type of business you’re conducting. When you purchase a property using a business LLC, your personal assets are usually shielded from liability regarding incidents on the commercial property, but this is just one consideration. Consult with your business real estate attorney to discuss this more fully.

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What Qualifies as an Exchange Under Code Section 1031?

In other words, does your real estate exchange qualify for federal tax deferment?

Under code section 1031, an exchange is a real estate transaction in which an investment property is sold, and the acquired funds are used to purchase another commercial property. In short, a commercial building can be exchanged for a similar or equal commercial building without federal taxes having to be paid and then refunded.

On the surface, this type of exchange appears to include only two property owners who perform a direct exchange. Following the 1979 Starker v. U.S. decision, however, the definition of the structure of exchanges was expanded to include deferred exchanges, where the owner sells their property to one party and then purchases another property from a different party, using the proceeds from the original sale. This is sometimes referred to as a “Starker exchange.”

Because a 1031 exchange is a complex process with nuanced legalities, it is essential to work with an attorney BEFORE you sign any agreements to buy or sell your property.

What is an Estoppel Certificate?

An estoppel certificate is a document that outlines the current status of an active lease for a particular property. It includes information like the amount of rent collected, the total security deposit held, renewal and default conditions, etc.

The current tenant(s) signs it so interested parties can be assured that everyone mentioned in the lease has agreed to the terms presented. Addendums will be documented in the estoppel certificate if there have been any amendments to the original lease. Sublets and special assessments will be covered as well, if applicable.

“Interested parties” might be the lender for sale or refinance of the property (so they can determine if the rental income will cover the mortgage payments) or a potential buyer of the property (so they can decide if the income potential justifies the purchase).

What Is Title Insurance?

When you buy any property, a title search is conducted to confirm that the party claiming ownership of the property (the seller) is the legal owner. The search will look for liens, court judgments, deeds, land records, etc.

Once the title is deemed to be owned free and clear (or any outstanding liens or judgments are resolved), title insurance can be issued at the buyer’s discretion. This specialized insurance helps protect the buyer from economic loss associated with defects in a title or mortgage that may render it unenforceable.

Title insurance does not guarantee that your title will be perfect or without coverage exceptions; however, working with a business real estate attorney can help determine if title insurance is necessary.

Why Do I Need a COMMERCIAL Real Estate Attorney to Review My Documents?

Before you sign any documents associated with the purchase or rental of commercial property, it is essential that you hire a lawyer to review them. A commercial real estate attorney can review every aspect of your purchase or rental agreement, explain the “fine print” for you, ensure all concerns are answered, and address any ambiguous language that is open to interpretation.

A Commercial Real Estate Attorney for All Your Lancaster Commercial Real Estate Needs

Contact us today if you’re thinking about buying or selling commercial real estate, have a potential eminent domain dispute, or have a pending real estate sale in Lancaster that’s raising questions. The sooner your commercial real estate attorney reviews the sale, the sooner you can rest assured that your interests are being protected.

This blog is being published for educational purposes only as well as to provide general information and a basic understanding of the law, not to provide specific legal advice. By entering this site you understand that there is no attorney client relationship between you and the publisher. This site should never be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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