The due diligence process before acquiring commercial property can be relatively complex. Buyers need to ensure that the property meets all of their business needs in addition to performing the usual reviews associated with residential properties, such as title history assessments.
Business leaders and others making offers on commercial real estate may need to include contingencies for their own protection. Contingency provides the opportunity to cancel the transaction without penalties.
What contingencies are often necessary for the protection of commercial buyers?
1. Financing contingencies
Financing a commercial property purchase can be challenging. In some cases, changes in business operations or the economy can leave a buyer unable to secure the loan they need to complete the transaction. Financing contingencies allow for a cancellation if the buyer cannot secure a loan.
2. Zoning or use contingencies
Buyers might need to request a zoning variance or ask to change the existing zoning for the property. If they cannot do so, then they likely cannot use the property as intended. A zoning or land use contingency can protect buyers from acquiring properties that don’t suit their needs.
3. Sale contingencies
When a growing business wants to relocate from one property to a different one, carrying two loans can be quite challenging. Buyers may need to include sale contingencies that allow them to cancel the closing if they cannot sell their existing commercial property in a certain window of time.
Adding appropriate contingencies can limit the risk inherent in a commercial real estate transaction. Buyers may need help drafting documents that actually protect them when they make offers on commercial real estate, and that’s okay.