Some issues buyers should remember when negotiating a contract to purchase a commercial building are:
- Earnest Money: Keep the amount of earnest money that is deposited with the broker to a minimum. If you decide to terminate the contract it is easier to recover a smaller amount.
- Personal Property: List all of the personal property that you want. If there is an office or kitchen, then list desks, refrigerators, microwaves, satellite dishes, window treatments, etc.
- Possession: Make certain that the premises are “broom clean.” You don’t want to be responsible for cleaning up and throwing out unwanted items.
- Tenants: If there are tenants in the building then review their leases. Require the landlord/seller to provide you with a current letter from each tenant that confirms the amount of the security deposit, that there are no defaults, that the rent has been timely paid and that there are no amendments to the lease. Make certain that you receive the security deposits at closing.
- Mortgage Contingency: Specify the interest rate you need and number of years the loan will be amortized to make the transaction work for you. Don’t specify a higher rate than what you can afford.
- Prorations: Real estate taxes, rent payments and building expenses should be prorated as of the closing date. Because real estate taxes are paid a year late in Cook County, and since these taxes are expected to increase over the next few years, make certain that the real estate taxes are prorated at a rate in excess of 100% of the most recent tax bill.
- Professional Inspections: Allow a reasonable amount of time to have the building professionally inspected. Make certain that the owner cooperates and makes all areas of the building accessible for the inspector. The inspector may want to talk with tenants, employees and independent contractors who service the property. The contract should have a provision that permits the buyer to terminate the contract and recover the earnest money if the building is not in an acceptable condition to the buyer. The seller should provide the buyer with all documents involving the real estate taxes, maintenance, utilities, building code and permit issues and insurance claims involving the building for the past several years.
- Governmental Compliance: The building should be in compliance with the local code and all permits must be obtained. Some municipalities require permits for signage.
- Survey: Carefully review the survey to determine whether easements will impact the use of the property.
- Title Commitment and Policy: Specify the encumbrances and easements which you are prepared to take with the property.
Buyers should work closely with an attorney and other professionals when preparing and negotiating a contract to purchase real estate. The contract should be drafted in a way that addresses issues particular to the property. If you have any questions about negotiating your contract, please feel free to reach out to a member of our team.