When it comes to real estate closings, certainly residential closings come first to most families’ minds. But many of us buy property for our businesses, and that often means having a commercial real estate closing.
Commercial real estate closings sound like they should be similar to residential closings, but in many ways, they are different. The closing process differs, as do the rights of all parties involved.
The Commercial Closing Process
A commercial closing will often start with a letter of intent, which is not something normally used in a residential closing. The letter of intent is not a contract, it is simply an “agreement to agree,” that is, both parties are stating that they want to buy or sell the property, but neither are specifically bound by the letter of intent.
In a typical residential contract, the buyer will have a right to inspect the property, but otherwise, the seller will make numerous guarantees, warranties, and disclosures to the buyer. The seller has a large responsibility to be truthful and disclose everything that could materially alter the sale, or the sale price.
But in commercial closings, this is different–much of the responsibility is on the buyer, who will have to conduct its own due diligence. There may also be multiple inspectors needed, from various technical fields.
The buyer will have to do things like do inspections of the structure, the environmental factors on the property, code problems, and zoning issues. If a problem arises, it will be up to the buyer to take the property or not–there often is no clause whereby the seller can or has to fix the property, as may be the case in residential closings.
The amount of due diligence that needs to be done will depend on the property; a building that will be used as an office may need less due diligence than one that is being fitted for heavy machinery, industrial, or factory use.
The Lending Process
Borrowing money for a commercial property is also different than it is for residential property. There are often no laws that govern things like interest rates, and no standard loan agreements, the way there are in residential closings. The loan documents for one closing and one lender, can wildly differ from the terms in another closing.
The lender in a commercial closing may have more rights than in a residential closing, such as the right to foreclose with little or no notice, the right to foreclose if the company goes out of business, or to foreclose if various insurances are not maintained on the property.
The lender may require that you personally guarantee the loan, and may lien property of the business to secure the loan.
Whether you have a residential or commercial closing, our New Jersey real estate law attorneys at The Law Office of Agnes Rybar LLC can help you through the entire closing process.
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