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Commercial Real Estate, Part 1: When to Bring in the Attorney

By July 12, 2021 No Comments

It’s not uncommon for someone to give my firm a call to “let me know” that they have a real estate purchase or lease coming up, although they don’t yet need a contract reviewed or drafted, and don’t yet have a location or due diligence items to review.  It’s also not uncommon for someone (sometimes the same person) to let me know that “they gave us everything we wanted” so they didn’t need legal assistance. Unfortunately, this is probably not true, although it may not rear its ugly head if they are lucky.

Legal counsel for a real estate transaction provides clarity regarding all the issues that aren’t necessarily on the term sheet, letter of intent, or first couple pages of the contract. When an agreement is more than a couple pages (which most real estate contracts tend to be), the legal implications of the rest of the document after the first page need to be understood and reviewed by someone that has your interests in mind. That’s why you need an attorney.

If you are the buyer, then you are generally responsible for the initial draft of any agreements.  If you are the landlord in a lease transaction, then you are generally expected to provide a lease.  I would recommend bringing in an attorney prior to the initial draft, in order to discuss your goals, the external considerations for the transaction, and to structure the initial drafts according to your desires.  Furthermore, your attorney can make sure that the document is at least even-handed, or that if it favors one side, it favors yours.  Form documents used by many commercial realtors have provisions that favor one side or the other, and you may not be on the right side!  After the initial draft, you can negotiate the various points that arise after both sides have reviewed the agreement.

Many times, deals suffer from a short-circuited timeline.  Attorneys will get a call and be asked to review and turn around a draft of a lease or purchase agreement as soon as possible, with little or no time to meaningfully negotiate.  It is important to leave time for negotiation.  The party that would suffer a worse position from a lack of adequate negotiation is typically the tenant or the buyer.  This is because usually the landlord has a prepared lease and if it’s not negotiated then he got everything he wanted, and only had to negotiate the business details (rent, tenant improvement, etc.).  For a purchase transaction, the buyer is the one who will be taking ownership of the property, so making sure you’ve investigated properly and negotiated contingencies in case something is wrong with the property are important.

Stay tuned! Next time we’ll cover the some of the periods within a commercial real estate purchase agreement.

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