When to Hire a Commercial Real Estate Attorney

by | Jun 17, 2024 | Article

When to Hire a Commercial Real Estate Attorney

Navigating the complexities of commercial real estate transactions can be a daunting task. Whether you are buying, selling, leasing, raising capital, negotiating loans, or resolving disputes, having a knowledgeable commercial real estate attorney on your side can be essential.  A commercial real estate attorney can provide critical support in various stages of property transactions, understanding when to hire a commercial real estate attorney can save you time, money, and legal troubles.

Commercial Real Estate Purchase and Sales

In the case of a purchase or sale, it is often helpful to bring in an attorney as early as possible – frequently this is at the letter of intent or term sheet stage.  While the business terms of a sale are generally negotiated by a broker or directly between the buyer and seller.  Having an attorney review these terms as they are being negotiated can be helpful and will help streamline the process in the future.

If you have already agreed upon the terms to a potential purchase and sale, the next most common time to engage an attorney is to prepare/review the purchase and sale agreement that will govern the transaction.  Traditionally the purchase and sale agreement is prepared by the attorney for the seller, but in some instances it will be prepared by the buyer’s attorney.  Even if you have a broker assisting you and they offer to prepare or review the purchase agreement, it is important to have a skilled attorney negotiate the agreement on your behalf.

In addition to negotiating the purchase agreement, a commercial real estate attorney can assist a buyer in the due diligence associated with an acquisition including (i) the review of title and survey and negotiation of a title insurance policy, (ii) the review of any existing leases, and (iii) the review of any title matters such as easements or CC&Rs burdening the property.  Attorneys will also play a central role in the closing of a purchase and sale transaction.  A typical commercial real estate closing involves dozens of closing documents ensuring that all of the elements of the property are appropriately transferred from the seller to the buyer including the real property itself, buildings and other improvements, contract rights such as leases, licenses, and occupancy agreements, as well as service and vendor agreements, personal property (including vehicles) used in connection with the operation of the property, as well as intangible personal property such as warranties, permits, licenses, development rights, websites, names, and phone number used in connection with the operation of the property. 

Commercial Real Estate Leasing

Similar to purchase and sale agreements, if possible, it is helpful to involve an attorney at the letter of intent or term sheet stage of a commercial lease.  While a broker or brokers will generally take the lead on negotiating these business terms, or they may be negotiated directly by the landlord and potential tenant, having a lawyer involved in these negotiations on each side can be helpful and save significant headache in the future.

Once the business terms have been agreed upon, generally the landlord’s attorney will prepare an initial draft of the lease.  A tenant would be well advised to have an attorney review and negotiate that lease.  Many tenants assume that a lease is “standard” and cannot be meaningfully negotiated, but in the commercial context that is rarely the case.  The extent to which a landlord is willing to negotiate with a tenant varies by situation and depends on factors including, the size of the premises being leased, the relationship between the premises being leased and the total size of the property in which the premises are located, the size and creditworthiness of the tenant, the length of the lease, and whether or not the landlord has any other offers to lease the space.  Nevertheless, in nearly every circumstance, a savvy tenant will be able to secure significantly improved terms by negotiating the lease form provided by the landlord. 

Commercial Real Estate Loans

In the case of a commercial loan, the borrower and lender will generally engage directly, sometime with the aid of a broker, in negotiating the initial term sheet and loan commitment.  As is the case with respect to sales and leases, it is frequently helpful to have an attorney review these items, but the attorney will not generally take the primary role in negotiating them.  The attorney’s role will become more central once a loan commitment has been agreed to by the borrower and lender.  The attorney will take the lead on reviewing and negotiating the loan agreement, security instruments such as a mortgage or deed of trust, guaranties, including environmental indemnities and the various other ancillary loan documents.  The attorney may also play a central role in coordinating with the lender’s attorney and obtaining, organizing, and providing the various documents a lender will require from a borrower to complete its diligence.  The extent to which the loan documents will be able to be negotiated depends on a variety of conditions including the size and type of the loan, who the lender is, and the length of the loan term.  In some instances, the loan documents may be offered on a “take it or leave it” basis or subject only to limited negotiation in which case the attorney’s role will be limited to reviewing the loan documents to confirm they conform to the agreed upon terms of the loan commitment and addressing any major “red flags”.  In other instances, the loan documents may be thoroughly negotiated between the buyer and seller.  If you are negotiating with a new lender for the first time, it may be important to be especially thorough in your review and negotiation of the loan documents and they will likely be used as a precedent for future loans made by the lender to the same borrower.

Joint Ventures, Partnerships, Syndications

When negotiating a multiparty investment structure such as a joint venture or partnership or creating a vehicle for multiple investors to share in the common ownership of a property, it is important to involve an attorney early in the process. Even if seemingly routine, these arrangements tend to become complicated quickly and implicate many legal topics of which the participants may not be aware including complicated tax and security issues.  These relationships also tend to be designed for many years and therefore it is important at the outset to think through the many issues that may develop in the future.  It is therefore important to involve experienced attorneys at the outset so that these potential issues can be brought to the forefront and worked through by the parties.  Identifying and navigating these issues early in the process can save significant amounts of time, money and frustration down the road.  Once the parties, with the aid of their attorneys, have agreed upon the business terms and general structure of the arrangement, the attorneys will take the lead on drafting and negotiating the relevant contracts documenting the applicable arrangements.  Additionally, depending on the structure of the investment, a knowledgeable attorney can help you satisfy relevant securities law requirements such as making appropriate filings with the SEC and completing appliable “blue sky” filings.

Resolution of Disputes

Conflicts can disrupt business operations and lead to costly legal battles.  A commercial real estate attorney can help facilitate negotiations to resolve disputes efficiently and avoid protracted legal battles.  Involving an attorney early in the event of a disagreement or dispute can be helpful.  Often, an attorney will be able to advise you “behind the scenes” as you continue to negotiate informally with your counterparty.  Involving an attorney at this stage can help you understand your rights and remedies vis a vis the other party.  This can help you avoid making a misstep that will keep you from resolving the dispute in a manner most favorable to you or expose you to additional liability in the future.  It will also help you position yourself in the event the dispute requires escalation to a more formal method of resolution.

If the parties are unable to resolve a dispute amongst themselves, attorneys can step in and help play a more central role in resolving a dispute.  Frequently, it may be helpful simply to have third-parties step into the middle of a dispute to help negotiate a successful resolution.  Attorneys can be helpful in playing this role, even before initiating a more formal dispute resolution process such as litigation, arbitration, or mediation.

If these more informal methods of dispute resolution are not successful in resolving a dispute, an attorney can then advise you on initiating a formal method for dispute resolution.  Depending on the facts and circumstances of the particular situation, that process may be litigation, arbitration, or mediation.  In the real estate context, the contract governing the relationship between the parties engaged in the dispute will often dictate the forum for such dispute resolution.  Having a skilled attorney represent you in a formal dispute resolution can be critical to resolving a dispute as quickly and cost effectively as possible to avoid protracted and expensive legal proceedings that can derail the viability of a project.

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