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Commercial real estate investing is not the same thing as residential real estate investing. Just because both property types have four walls and a roof does not mean they have the same investment strategy. Commercial deals and contracts are subject to different regulations than residential properties. Residential real estate investors looking to invest in commercial real estate should be aware of the different facets of commercial deals and contracts.
Shawn Yesner, of Yesner Law Firm of Tampa, specializes in real estate law. After getting his start in real estate law representing lenders, Shawn began his own law firm in 2004 representing homeowners. Shawn has since expanded his firm to encompass all aspects of real estate law, representing property owners in a variety of legal processes. Shawn discusses some important points for investors to consider when completing commercial deals and contracts.
- Contracts
- Residential real estate uses one contract template – FARBAR (FL Assos. of Realtors + FL Bar Assos.)
- Attorneys specialized in commercial real estate should draft commercial contracts
- Only clauses that meet buyer/seller agreement should be introduced
- Tenant Leases
- Make sure tenants are current on lease payments
- Track lease deposits
- Keep leasing contracts in same format
- Tax-Deferred Opportunities (1031 Exchange)
- Strict timelines and regulations to be aware of
- Seek assistance from CPA or certified agent
- Be able to prove constructive receipt of funds; don’t get stuck with tax liability
- “As Is” Contracts
- Seller should always disclose state of property
- in FL, Johnson v Davis sets “as is” precedence: Seller must disclose anything material to purchase of property and/or anything that might not be found after a reasonable inspection
- Assignments
- Buyers may choose to assign ownership of property to LLC or other business name
- Contracts should hold original buyers liable
- Buy/Sell Authority
- FL recently changed LLC laws
- Sellers should be aware of who holds legal authority to make buying or selling descisions
- Title companies can do bulk of research on this
- Incomplete Agreements
- A detailed contract should outline purchase agreements
- Sellers should not leave any gray areas to argue incomplete agreements
- Zoning
- Make sure you know your property’s zoning authorizations
- Zoning can be changed, but make sure your property can accommodate changes
- Environmental Issues
- May pose big concern for environmental properties
- Owners may be responsible for environmental factors that occurred prior to purchase
- Buyers should complete phase I assessments of properties for any red flags during due diligence process
To contact Shawn for any real estate law needs, visit his website!
Shawn also hosts a podcast covering many legal topics in real estate investing and ownership. Check out Yesner Law Podcast on iTunes, Stitcher or your favorite major podcast platform!