Q: What exactly is commercial real estate?

A: Broadly defined, the term "commercial real estate" can be used to refer to any dealing with real property in a business context. It could involve leasing out office space, owning an apartment complex, or selling real property along with and as part of the sale of a business. It might be industrial or agricultural property. It could even involve residential properties like apartment complexes or rental houses being held for business or income-producing purposes. It can even involve working with the government. Unless the property is a residence where the homeowner is living, you are probably dealing with commercial real estate.

Q: Are there really that many differences between a commercial real estate deal and buying a house?

A: While many of the concepts are the same, there can be huge differences between commercial and residential real estate. Commercial real estate transactions can be far more diverse and wide-ranging than selling home. The risk and potential liability exposure that you face on a commercial real estate deal can be much greater than when you buy a house. Depending on the nature of the business, commercial property may have all kinds of liens and title problems. There may be greater concerns about hazardous materials or zoning issues. And there will always be questions about the suitability of the property's location for your business needs.

Q: If I hire a real estate broker, why do I need to hire a lawyer?

A: The benefit of competent legal advice on a real estate deal stands on its own. There are so many things that can go wrong on a real estate deal that you may very well end up kicking yourself mightily if you don't hire an attorney to help you with the transaction. You may even end up hiring a lawyer on a lawsuit, which could end up be a lot more expensive. Real estate agents don't usually get paid unless the deal closes (or unless you somehow become obligated to pay a commission by, for example, backing out of a deal or otherwise breaching your listing agreement) and listing agreements will clearly state that real estate agents are not providing legal advice. So, real estate agents are typically not going to worry about the "what if's" of the legal details and are inclined to do whatever they can to push a deal to closure. This is not the case with an attorney working on an hourly basis, who is going to get paid one way or the other. An attorney will be in a better position to provide you with essential legal advice and to do so with more impartiality than may be the case with your real estate agent.

Q: Is an escrow always necessary?

A: Strictly speaking, no. Unless the parties contractually agree to it as part of their deal, there is seldom a legal requirement that there be an escrow. Inevitably, though, an escrow is almost always a good idea. The escrow company ends up being an intermediary and a facilitator to the transaction. They can also handle most of the details and the paperwork, including escrow instructions, title reports, title insurance, recording deeds and other instruments, and disbursing funds.

Q: What is a preliminary title report and how much attention should I pay to it?

A: A preliminary title report is a document prepared on real property once an escrow is opened, but prior to closing. It provides all kinds of information about the property that is essential for a buyer to see, such as how title is currently held and what kind of exceptions to title are currently of record (for example, easements, liens and encumbrances). The preliminary title report then becomes the final title report, on which title insurance is based. In addition to specific exceptions to title that will be listed on a title report, it will also list standard exclusions from coverage.

In virtually every real estate transaction, the buyer has the right to approve or object to the preliminary title report and back out of the deal unless the seller can provide clean title by eliminating certain exceptions to title prior to closing. But a buyer will only have a short period of time during which to act on the preliminary title report. So it's extremely important for a buyer to carefully review a preliminary title report immediately and to take appropriate action if there are any unacceptable exceptions to title.

Q: Are there different types of deeds, and why should I care?

A: The type of deed can make a big difference. In some states, the typical conveyance is a grant deed, which basically says the seller has an interest in the property and that it is being conveyed to the buyer, but not necessarily with any representations or warranties as to title. Other states have warranty deeds that go a step further to provide a warranty that the seller has good title to the interest being conveyed. All states have something like a quitclaim deed where a party is only signing over whatever interest that party has in the property, if any.

The bottom line is that you could take a deed from someone that means nothing. While this may amount to fraud on the part of the seller, who wants to have to sue someone to try to enforce your rights? And you may not even have a good case if, for example, you accepted a quit claim deed that says that you got only whatever interest the other party had, which may have been nothing. You can see the need to get competent legal advice.

Q: What should be in a real estate purchase contract?

A: Real estate purchase contracts can be extraordinarily simple but usually end up being very complex and lengthy documents, in order to try to address all the "what if's" that are typically involved in a commercial real estate transaction. Points that would typically be covered include:

1. •Parties
   

2. •Recitals (background facts as to why the parties are doing the deal)
   

3. •Description of the property
   

4. •Sales price and terms of payment
   

5. •Title and title insurance
   

6. •Closing date
   

7. •Escrow provisions
   

8. •Conditions to closing
   

9. •Representations and warranties
   

10. •Environmental and hazardous waste provisions
    

11. •Zoning and land use issues
    

12. •Rights to inspection
    

13. •1031 exchange provisions, if applicable
    

14. •Liability insurance requirements
    

15. •Indemnification and hold harmless provisions
    

16. •Remedies if a party breaches
    

17. •Rights to amend and modify
    

18. •Term and termination
    

19. •Rights to assignment or delegation of rights
    

20. •Attorneys' fees and costs
    

21. •Arbitration rights, if any
    

22. •Governing laws
    

23. •Other standard provisions
    

In many instances, it's possible to use standard form documents prepared by realtor associations that help to facilitate the drafting process. At a minimum, these standard form agreements can serve as effective checklists of issues you may want to address.