Whether you’re planning on buying or selling a commercial property, the process hinges on a real estate contract. Commercial real estate contracts are complex, however, and they require an in-depth understanding of their various components and qualified guidance from a real estate attorney.
Take a closer look at some of the most important elements of a real estate contract in California that you need to know.
The Basics of Real Estate Law: What Is a Commercial Real Estate Contract?
Commercial real estate contracts are binding agreements between parties involved in the sale, purchase, or lease of a property. Often, investors assume they’re similar to residential contracts, but they’re much more complicated in scope.
For example, commercial real estate contracts usually deal with significantly larger sums of money than residential contracts. They also address regulatory complexities and include multiple stakeholders.
The commercial real estate contract clearly states the terms and conditions of the transaction. It describes the property, identifies the parties involved, outlines the obligation of all parties, and establishes the monetary amounts for the sale or lease.
Key Elements of Commercial Real Estate Contracts
Real estate law requires that certain elements be included in contracts. These elements can include:
Terms of Financing
Commercial real estate transactions involve serious amounts of money, and that means ensuring that the terms of financing are clear in the contract. One of the options that buyers have is to include a financing contingency. This essentially means that the buyer’s offer is dependent on whether they can obtain financing.
If the buyer isn’t able to get financing, they can withdraw their offer. If they don’t have a financing contingency clause in place, however, they can be held for breach of contract if they fail to pay.
Security Deposits
There’s a required security deposit in most commercial real estate sales or leases. The most important aspect of establishing a security deposit is detailing whether it will be refundable or not when the contract ends. It’s essential to clearly state the various provisions around the security deposit in the contract.
Closing Costs
Another vital aspect of commercial real estate contracts is establishing who will be responsible for closing costs. At the time of the closing, either the buyer or seller will have to cover certain expenses. Such expenses can include:
- Transfer tax
- Escrow fee
- Title search fee
- Title insurance
It’s important to have an attorney well-versed in real estate law to help ensure that closing costs are dealt with fairly.
Property Inspection Contingencies
For buyers, commercial real estate contracts should contain property inspection contingencies. These allow them to walk away from the transaction if the inspection reveals major flaws in the property’s structure. Keep in mind that this is essential for both real estate purchases and leases as well.
Title Disclosures
The contract must also include provisions for the seller to disclose if there are any prior rights to the property title. In the case that the seller doesn’t disclose this information, the contract should also contain options for the buyer.
Liquidated Damages
Commercial real estate contracts should also have provisions for liquidated damages. Liquidated damages are sums of money that have to be paid from one party to another if a contract is breached. The sum covers intangible losses. A buyer may have to pay liquidated damages, for example, if they cause physical damage to the property.
Get Guidance From Experienced Real Estate Attorneys
Commercial law is complex and requires the assistance of a knowledgeable advocate. At Alves Radcliffe, our seasoned team has helped clients throughout Northern California, Sacramento, and San Francisco successfully navigate their real estate contracts. Contact us to schedule a consultation today.