For business owners in Mississippi and elsewhere who are aiming to buy commercial real estate, whether in order to expand their enterprise or when just starting out, it can be a surprisingly complicated and sometimes extended process. In fact, commercial property transactions are not at all like buying or selling a home.
Not only should the client be prepared for thorough due diligence in title and premises inspection, but also in understanding how the business operations or location may trigger particular state laws or local ordinances, as well as potential liability issues. Business owners entering the Meridian real estate market should turn to reliable sources for information on the contractual aspects of the process in order to ensure a satisfactory and legally sound outcome.
Due diligence and the LOI
When beginning a commercial real estate transaction, the client should follow important first steps that will spell out special considerations or negotiations. The letter of intent (LOI), also called a term sheet, identifies the parties involved and usually outlines their intentions. There may also be specific provisions that should be part of the formal agreement.
The next stage of due diligence is crucial to the investigation of all aspects of the transaction:
- Title and survey
- Service contracts, management agreements or leases
- Engineering and environmental factors
- Use and zoning regulatory compliance
Negotiations and terms
During the formation of the purchase and sale agreement, both parties will enter into a negotiation of the terms and conditions that will satisfy their specific needs. Some parts of the agreement that the two sides will typically discuss are:
- Representations and warranties, which lay out risk factors, indemnification obligations and liability should there be inaccuracies in representation or a breach of a warranty
- Covenants, which outline the obligations for maintenance and repair, including maintaining insurance and the release to the seller to enter into new contracts
- The closing conditions, which will set contingencies of use as well as the conditions for the buyer to acquire the property as finance the purchase
- Prorations and credits
There may also be issues that arise from industry-specific considerations, local laws, financing or other considerations. Understanding the risks while clarifying their goals will help the business owner to protect their business interests from the outset.