Commercial contracts may be considerably lengthier and more complex than their residential counterparts, and negotiations between the buyer’s and seller’s representatives may take weeks. Here are a few significant differences between the familiar New York residential purchase contract and a commercial one.
Property type
Commercial real estate encompasses a variety of properties, including such diverse types as a five-unit multi-family home, an apartment building, a hotel, a warehouse, a manufacturing plant, a gas station and a shopping mall. Many offers may include the purchase of existing equipment.
Due diligence
Commercial real estate produces income, and the due diligence timeframe states how long the buyer may take to examine the books and records of the company, complete inspections and obtain and review copies of tenant leases, if applicable. Depending on the property’s complexity, this process could take weeks or months.
Unlike residential real estate, the cost of maintaining the building is an essential factor. The inspection needs to determine the property’s current condition and estimate the costs of necessary upgrades. The owner has to submit utility, landscaping and property management records. The buyer must examine every detail that affects their projected income stream.
Land use is another factor affecting commercial real estate sales. Often, a buyer might want to change the operation of a building. Perhaps it currently is an office that rents space to a variety of small businesses. The new owner wants to make it a dental office. However, the zoning regulations may require a specified minimum number of parking spaces for a medical building. That type of discovery must occur during the due diligence period. Otherwise, you might find yourself the proud owner of a building you cannot use.
Every word of a commercial contract is important. Ensure that you understand the terms before signing.