Take the time to understand the legalities that apply to your property listings in commercial real estate and your location as a broker. Many negotiations will have pressures and factors to consider when it comes to the final lease document and the contract. (NB – you can get plenty more listing tips in commercial real estate brokerage right here in Snapshot – its free)
The parties to the contract or lease may have specific requirements to be documented in the final lease or contract. The message here is that you should be very careful when it comes to documenting the final requirements and intentions of the parties, and the attributes of the property.
Any errors made when it comes to commercial property documentation, representations, and the actions of the agent may very well threaten the integrity of the deal and derail the negotiation. Errors or omissions between the parties can also lead to claims of misrepresentation and negligence; the parties to the deal can then finish up in court. All too often you hear about agents and brokers being pursued legally for errors in documentation or similar problems.
Special note should be made here about the information on the property that may be given or offered by the client as part of the listing process. Some clients will tell you the entire story and accurately share all of the required property facts. Other clients may be less open and more selective about what they say and do. For this very reason, it is essential that you drill down accurately into property detail, orders, and notices, factors of restriction, access, and property performance.
Make and take plenty of notes from the conversations that you have with your clients, buyers, investors, tenants, and property owners. Those notes that you take are likely to be the only support tool that you have when it comes to proving what was said and done as part of a property transaction.
Legal Question and Answers About Commercial Property
So here are some ideas to help you with questioning the facts and the legalities of the property to be taken to the market for sale or for lease. You can add other issues to this list based on the property type, your client, and your location.
- Get the facts about the property title – This requires that you to get a copy of the actual title for the subject property. You should read that property title and then also get copies of supplementary documentation that may apply and/or be registered on the title. Any document that is noted on the title as having a specific interest or application to land ownership should be investigated.
- Occupancy and lease documentation – You will find that the levels and types of lease documentation will vary across locations, property types, property ownership structures, and tenancy mixes. If you are selling a property as an investment, spend some time reviewing the lease documents to understand the complete factors of rental, lease covenants, lease expiry dates, outgoings recoveries, and landlord obligations.
- Rental recoveries and outgoings recoveries – Every investment property will have cash flows to be investigated prior to the commencement of marketing. Most particularly the cash flow should be investigated when it comes to rental payments, arrears, rental structures, lease occupancies, and outgoings recoveries. In larger properties there will be budgets to consider and compare to the actual cash flows across rentals and outgoings. Understand that the money is being charged to each tenant as part of occupancy are in accordance with established and signed lease documents.
- Vacancy factors – If a property has any form of vacancy existing at the time of marketing, know what vacancy is and if any current negotiations that are occurring with potential new tenants. The negotiation of the vacancy may have an impact on the marketing campaign and the negotiation with any potential buyer for the property.
- Property use and zoning – Zoning regulations will apply when it comes to any investment property or property for lease. Those zoning regulations will be controlled and set by the local planning authority. For that reason, you will need to take the time to review the local planning regulations for your area and the particular precincts involved in each and every listing. The property that you sell or lease should comply with the legalities of zoning and occupation. If compliance is a problem when it comes to any particular property, then the appropriate legal situations should be investigated and a strategy identified with the client and their solicitor to allow a valid and legal contract or lease to be created as a result of your marketing efforts.
- Understand regional issues – Some locations will have special factors to remember or investigate such as flooding, environmental pressures, local property orders, zoning, and permitted use.
- Special factors – Some properties will have factors to consider including the environment, energy, heritage, services, and amenities. Question these operational factors and any limitations that may be imposed on the property and therefore may have an impact on any contract of sale or lease of occupancy.
- Structural and engineering issues – In looking at any property for sale for lease, understand the factors of engineering or structural integrity relating to the improvements on the land that may have an impact on your negotiations. If necessary, insist that the client undertakes the appropriate specialised engineering report for you to review prior to marketing the property. Reports of this nature will also come in handy when it appears you are nearing the point of negotiation with any potential buyer or tenant.
- Building codes and occupancy approvals – Every property will have compliance issues to adhere to when it comes to building codes and legal occupancy. Ensure that the appropriate approvals exist for the property that you are listing and marketing. You can also question the levels of maintenance and property performance controls that apply to the plant and machinery within the property. It may be necessary for you to get reports from the necessary machinery contractors as part of that property investigation.
So the message here is that you should take the time to understand the legalities of the property, the client, and the factors of the deal. When in any doubt, investigate facts further before going to documentation.