This is the next post in a series of articles discussing the importance of real estate counsel in commercial and investment transactions in Olympia or Tacoma, Washington. The previous post focused on common environmental issues that arise in commercial real estate and investment property transactions. It also stressed the importance of engaging a real property lawyer to help identify and protect against potential environmental liabilities or project limitations. In this article, I will discuss the role of legal counsel in negotiating the documents for a purchase or lease of commercial real estate. If you are involved in a transaction for the sale, purchase or lease of real property for your business or for investment property, contact my office today to speak with an attorney.
From the due diligence phase through the closing of a commercial property transaction, the parties will face a variety of complicated issues. A real estate attorney is an important member of any real estate investment team. An experienced attorney can identify risk areas and potential liabilities for a client. This is especially true in the development and negotiation of the purchase/sale agreement or lease. A lawyer may prepare initial drafts of the documents, will explain the meaning of the various provisions to their clients, and can negotiate clear and fair terms on their client’s behalf. The documentation must accurately reflect all the parties’ rights and obligations. Of course, everyone involved in the transaction hopes that it goes smoothly and that no disputes will arise after closing, but if a problem develops, the parties’ rights and obligations will be based on terms of the contracts negotiated before anyone had an inkling of the problem. Having a well-written agreement in place could avoid costly and time-consuming litigation and could help you reach a favorable result if litigation is unavoidable.
Key negotiation points and documents will vary based on the nature of the transaction. For example, a buyer in a purchase of an apartment building may want to negotiate a strong inspection clause with a right to terminate the agreement if the inspection reveals building defects. The buyer may also want to ensure that his deposit is returned in such an event. The seller in the same transaction may wish put time deadlines on the buyer’s inspection period and limit the reasons that a deposit would be refundable. Experienced counsel for both parties would negotiate these matters on their respective clients’ behalf and draft clear contract language to reflect the ultimate agreement.
In a lease transaction, the parties will have an ongoing relationship as landlord and tenant for the length of the lease. Commercial leases can have significant terms, some for more than 20 years depending upon the nature of the business. The amount the tenants pay in commercial leases are often set by formula, such as triple net, rather than being a flat monthly amount. For this reason, commercial lease agreements are often (and should be) heavily negotiated. The landlord’s and tenant’s rights and obligations must be clear and fair or problems will arise during the lease term. Provisions such as tenant improvements, rent increases and calculation, repair responsibilities, default and termination, insurance, and allowed uses can become contentious.
Consider, for example, a company negotiating a lease for a space to be used as a production facility. The company is seeking a long-term lease of the property, with the ability to redesign the space and install production equipment before taking occupancy. The company would want assurances from the landlord that the mechanical, electrical and other systems are in working order and sufficient for the use at the time the premises are delivered. Both parties would want the lease to address how to handle defaults by the other party. Finally, if the tenant’s use is one that requires unusual modifications to the building, the landlord may want the tenant to have a restoration obligation at the conclusion of the lease. A knowledgeable real estate attorney can recognize, review and negotiate the relevant provisions in the lease documentation to minimize the risks associated with a the lease and avoid lease disputes and litigation.
These examples represent a small sample of issues that can arise in commercial real estate documentation. I cannot overemphasize the importance of engaging an Olympia commercial property attorney to assist with any type of transaction and specifically to negotiate the necessary contracts on your behalf. If you are contemplating buying, selling or leasing commercial property, contact my office today to speak with a lawyer. The firm also services the Thurston County cities of Lacey, Tumwater, and Yelm, the Pierce County cities of Tacoma, Puyallup, and Lakewood, the Lewis County cities of Centralia, and Chehalis, the King County cities of Seattle, Auburn, Bellevue, Burien, and Federal Way, as well as other areas in Washington, including Grays Harbor, Mason, Cowlitz, and Pacific Counties.