Understanding commercial Real Estate Transactions

Navigating the complex landscape of commercial real estate transactions requires a deep understanding of the legal framework that governs these transactions.

Commercial real estate transactions can include a myriad of considerations and it is important to involve a lawyer from the outset as a lawyer can often draft the initial Letter of Intent (LOI) that will be used as the framework to draft a formal agreement of purchase and sale (APS). Our lawyers have extensive experience in drafting LOI’s and agreements that will ensure your rights are protected as a buyer and if you are a seller you want to ensure you are not agreeing to provide any unnecessary representations or warranties that can create liability exposure for you as the Seller.

Commercial property transactions come with their unique challenges, from understanding zoning regulations, environmental considerations, conservation regulations, due diligence investigations, financing considerations and the potential assumption of commercial tenants. All of these considerations require specialized legal expertise to ensure you have the proper information to make informed decisions at every stage in the process.

Critical areas of focus include understanding the applicable zoning by-laws, environmental regulations, building code regulations, and tax considerations each of which can significantly impact the viability of your business goals.

We also emphasize the importance of due diligence in every transaction. This involves detailed assessments of the property’s legal title, environmental conditions, and compliance with current building codes and standards. Through our extensive experience, we guide our clients to identify any potential legal issues with respect to title, zoning violations, building code violations, fire code violations and other issues that can impact the transaction.

Navigating a commercial property transaction requires careful step-by-step management to ensure all legal requirements are met, and the interests of all parties are protected. Here are the key steps you should consider in any commercial real estate transaction:

1. LOI and Agreement: Consult an experienced lawyer that can assist you with drafting the Letter of Intent (LOI). Letters of intent are typically non-binding and therefore it will usually not create any legal liability for either party. Once the terms of the LOI have been agreed to by both parties then a lawyer can assist you with drafting an agreement of purchase and sale that will mirror the terms of the LOI and will often include other terms as well.

1. Title Due Diligence: Once a LOI is signed it would be wise to have a lawyer review the title to the property to determine if there are any unusual easements, plans of expropriation or other encumbrances that could impair your future intention with the property. At this stage, it would also be prudent to review any leases that you may be assuming as part of the transaction.

1. HST and Land Transfer Tax: It is also important to consider the tax implications as HST typically applies in commercial real estate transactions but there are ways to defer the payment of HST on closing.

1. Other Due Diligence: It is not uncommon to include lengthy due diligence conditions in commercial real estate transactions as the Seller will typically not provide the necessary representations and warranties that any prudent purchase would require. These due diligence conditions will often include zoning by-law reviews, compliance with applicable building codes, fire codes, environmental regulations and conservation authority compliance. In addition, if you are assuming tenants you will want to review all the lease agreements and ensure they are in good standing and not in default.

1. Financial Due Diligence: Before waiving the due diligence conditions, you want to ensure that your financing is in order as financing commercial transactions will often include many more conditions when compared to residential transactions. Some of the additional conditions include obtaining a satisfactory environmental report (Phase 1/Phase 2) that confirms the property is free from all environmental contaminants.

In the realm of commercial real estate, the complexities and stakes are high and it is important to not underestimate the challenges commercial real estate transactions often present.

Our role is to ensure that our client’s interests are protected at every stage in the transaction to ensure your financial investment will yield the greatest return in order to ensure you achieve your business goals. With our specialized knowledge, we can anticipate and mitigate risks that can arise in any commercial real estate transaction. Our experience and expertise allow us to handle the nuances of each transaction in an effective and efficient manner.

Conclusion

It is best to involve a lawyer from the outset to ensure the LOI and/or the agreement of purchase and sale is drafted in a way to ensure your rights are protected. A lawyer will often help you consider matters that may have been overlooked. Accordingly, our role goes beyond merely providing legal advice. We serve as your strategic partners, fully invested in ensuring that every transaction is structured in a way that aligns with your broader business goals.

The lawyers at Vakili Law Group have been advising individuals, development companies, real estate investment corporations, private lenders and small businesses for more than a decade and will be happy to assist you with your matter as well. For more information feel free to schedule a free 15-minute consultation with one of our lawyers by clicking on the following calendar link: https://calendly.com/vlglaw/book-a-call-meeting