Purchasing Real Estate for Business

Purchasing real estate for a business is a significant investment that can have long-term implications for the success and growth of your enterprise. Whether you are buying a property for a retail store, office space, warehouse, or any other business function, the complexity of the real estate transaction process cannot be overstated. It involves a variety of legal, financial, and regulatory considerations that require careful navigation. In such a scenario, having a lawyer, particularly a specialized professional like Denver real estate attorneys, by your side is not just advisable—it’s essential.
Let’s delve into why it is crucial to have a commercial real estate lawyer when purchasing real estate for a business, as well as the pros and cons associated with such a purchase.

The Importance of Having a Lawyer When Purchasing Business Real Estate

1. Navigating Complex Legal Processes
Purchasing commercial real estate is not as straightforward as buying a residential property. The contracts and legal documentation involved in commercial real estate transactions are often far more complex. They may include zoning laws, environmental regulations, tax considerations, and more. Colorado real estate attorneys, with expertise in local real estate law, can help you understand these documents and ensure that all legal requirements are met.
For example, commercial real estate contracts often contain clauses that can significantly affect your business, such as use restrictions, obligations for property repairs, and more. A lawyer can help negotiate terms that are favorable to you, minimizing potential risks and liabilities.
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2. Due Diligence
Due diligence is a critical step in purchasing real estate. It involves a thorough investigation of the property to uncover any potential issues that could affect your investment. This could include verifying property titles, checking for liens or encumbrances, reviewing zoning laws, and ensuring that the property complies with all relevant regulations.
Denver real estate attorneys can conduct or coordinate these due diligence checks, ensuring that there are no hidden surprises after the purchase. For instance, they can investigate whether the property is in a flood zone or whether there are any pending legal disputes related to the property.

​3. Negotiating the Terms of Sale
Negotiating the purchase price and other terms of the sale is another area where a lawyer can be invaluable. They can advise you on what is a fair price based on the market conditions and help you negotiate terms that are favorable to your business.
Additionally, lawyers can help you navigate any contingencies that may arise during the negotiation process. For instance, if the property requires significant repairs, a lawyer can help negotiate who will be responsible for those costs.

4. Understanding and Managing Financing Options
Financing commercial real estate can be more complicated than residential real estate. There are various financing options available, including traditional bank loans, Small Business Administration (SBA) loans, and more. Each of these options comes with its own set of terms and conditions.
Real estate lawyers can help you understand these financing options, review loan agreements, and ensure that the terms are favorable. They can also help you navigate the legal implications of using the property as collateral for the loan.

5. Compliance with Zoning and Land Use Laws
Zoning and land use laws dictate how a property can be used. These laws vary by location and can be quite complex. For example, a property that is zoned for industrial use may not be suitable for a retail store. Violating zoning laws can result in hefty fines and legal issues.
Denver real estate attorneys can help you understand the zoning laws that apply to the property and advise you on whether the property is suitable for your business needs. They can also assist in applying for zoning variances if necessary.

6. Mitigating Risks and Liability
Purchasing commercial real estate involves significant risks, including environmental risks, liability for accidents that occur on the property, and more. A lawyer can help you identify these risks and take steps to mitigate them.
For instance, if the property has environmental contamination, you could be held liable for cleanup costs. Bailey & Peterson’s real estate attorneys can help negotiate terms in the purchase agreement to protect you from such liabilities.

7. Reviewing and Drafting Contracts
The contract is the most important document in a real estate transaction. It outlines the terms of the sale, the responsibilities of each party, and more. A poorly drafted contract can result in significant legal and financial consequences.
Our real estate attorneys can review and draft the purchase and sale agreement to ensure that it protects your interests. They can also help you understand the implications of each clause in the contract.

8. Facilitating a Smooth Closing Process
The closing process is the final step in the real estate transaction. It involves signing the final documents, transferring ownership, and more. This process can be complex, with multiple parties involved, including the buyer, seller, lender, and more.
A lawyer can oversee the closing process to ensure that everything goes smoothly. They can also handle any last-minute issues that may arise, such as disputes over the final purchase price or issues with the property title.

Pros of Purchasing Real Estate for a Business

1. Long-Term Investment
Purchasing real estate for your business is a long-term investment that can appreciate over time. Unlike renting, where you make payments without any ownership, buying property allows you to build equity in the asset. This equity can be leveraged for future financing needs or can be realized through the sale of the property.

2. Control Over the Property
Owning the property gives you complete control over how it is used. You can make improvements, renovations, and changes to suit your business needs without needing permission from a landlord. This control also extends to the financial aspects, such as setting your mortgage terms rather than dealing with rent increases imposed by a landlord.

3. Stability and Predictability
Owning your property provides stability and predictability for your business. You don’t have to worry about lease renewals or rent increases, which can disrupt your operations. This stability can be particularly important for businesses that require a specific location or facility type.
Also you have a fixed payment with fixed-rate loans that protect borrowers from future rate increases. In contrast, rent may increase in a competitive rental market.

4. Tax Benefits
There are several tax benefits associated with owning commercial real estate. These can include deductions for mortgage interest, property taxes, depreciation, and more. Additionally, if the property appreciates in value, you may benefit from capital gains tax treatment when you sell.

5. Potential Rental Income
If you purchase a larger property than your business requires, you have the option to rent out the excess space to other businesses. This rental income can help offset the costs of owning the property and provide an additional revenue stream for your business.

Cons of Purchasing Real Estate for a Business

1. High Initial Costs
The most significant drawback of purchasing commercial real estate is the high initial cost. This includes not only the down payment on the purchase price but also closing costs, legal fees, and any necessary renovations or improvements. These costs can be a significant financial burden, especially for small businesses.

2. Reduced Flexibility
Owning a property can reduce your business’s flexibility. If your business grows or changes, you may find that the property no longer meets your needs. Selling commercial real estate can be a time-consuming process, and you may not be able to sell the property quickly if you need to relocate.

3. Maintenance and Repair Responsibilities
When you own a property, you are responsible for all maintenance and repairs. This can include everything from routine maintenance to major repairs, such as fixing a leaky roof or replacing HVAC systems. These costs can add up and become a significant expense over time.

4. Market Risk
Real estate markets can be volatile, and the value of your property can fluctuate. If the market declines, you may find yourself with a property that is worth less than what you paid for it. This can be particularly problematic if you need to sell the property during a downturn.

5. Opportunity Cost
The capital tied up in purchasing real estate could be used for other business investments, such as expanding operations, purchasing new equipment, or hiring additional staff. By investing in real estate, you may be missing out on other opportunities that could provide a higher return on investment.

6. Financing Risks
If you finance the purchase with a mortgage, you take on the risk of being unable to make payments if your business experiences financial difficulties. Defaulting on a mortgage can lead to foreclosure, resulting in the loss of the property and potentially harming your business’s financial stability.

7. Potential for Legal Issues
Owning property can expose your business to various legal issues, such as disputes with tenants if you decide to lease part of the property, compliance with zoning and environmental regulations, and liability for accidents or injuries that occur on the property. These legal issues can be costly and time-consuming to resolve.

Conclusion
Purchasing real estate for a business is a major decision that requires careful consideration of the legal, financial, and operational implications. Having a lawyer, particularly a real estate attorney, by your side throughout the process is essential to navigate the complexities of the transaction, protect your interests, and mitigate potential risks.

While owning property offers numerous benefits, including long-term investment potential, control over the property, and tax advantages, it also comes with significant responsibilities and risks. The high initial costs, reduced flexibility, and ongoing maintenance responsibilities are important factors to weigh against the benefits.

Ultimately, the decision to purchase real estate for your business should be made after thorough analysis and consultation with professionals, including real estate lawyers, financial advisors, and business consultants. By doing so, you can ensure that your investment supports your business goals and contributes to its long-term success.

​Our attorneys can advise you about local building and zoning rules, landlord-tenant statutes, and other legal considerations associated with owning commercial property, such as the type of legal entity to choose for your business and whether the business entity should own the property or a separate company should be established to own the property. We can also help you negotiate with the seller, prepare paperwork, navigate environmental and title issues, and complete the purchase. Call us today to schedule an appointment.