Category: real estate title

Commercial Real Estate: 5 Red Flags to Look for Before You Sign a Lease

Signing a commercial real estate lease marks an exciting time for your business, as it shows growth and greater opportunities for the future. Before you sign on that dotted line, however, it’s important to read your commercial lease in its entirety. Ensure you understand your rights and responsibilities, as well as the landlord’s rights and responsibilities.

5 Red Flags to Watch Out for in a Commercial Property Lease

If you sign an undesirable lease, it’s nearly impossible to exit without suffering some form of loss. As you read through your draft lease, watch out for these red flags.

1. Automatic Rent Increase

An automatic rent increase clause allows the landlord to increase the rate of rent automatically after a chosen period of time, often in yearly increments. For start-up businesses or small to medium-sized businesses, an automatic rent increase can cause unexpected financial struggle. Your lease should clearly explain any automatic rent increases or renewal terms, if applicable.

2. Broad Renewal Clause

Your lease should include a renewal clause that explains your options should you need to renew your lease. Make sure the renewal clause defines terms with great specificities, such as covering how much notice you need to provide to renew, how may renewal terms you have available to you and much more.

3. Unexpected Fees

Avoid a lease that mentions “occasional” or “unexpected” fees. With this wording, some landlords may attempt to charge your business fees that are not listed in your contract. If you have any concerns with the wording regarding fees, require the landlord to state each one outright in the lease itself. You don’t want unforeseen financial issues cropping up mid-lease.

4. Unfair Relocation Clause

Your landlord may try to work in a clause that says it may choose to move your business to another storefront or floor at any time. While relocation clauses are common in commercial property leases, you can ask for certain terms to be included. For example, you can ask to include contingencies that require the landlord to help pay for relocation and allow you to pay the original rent amount. If you cannot remove the clause or add in such contingencies, you may want to think twice about signing on the dotted line.

5. References to Spoken Promises

Any promise made by your landlord should be outlined in writing within your lease. Even if you know your landlord personally, a written agreement solidifies your relationship, protecting both your business and the landlord’s property. Make sure to include all verbal agreements within the written lease before both parties sign.

Does Your Commercial Lease Show any of These Red Flags?

If you have concerns about any of the clauses included in your draft commercial property lease, reach out to a professional commercial property attorney for help.

From Contract to Closing

You’ve found the house of your dreams and you can hardly wait for moving day! If you are a Real Estate Investor, the property is your next deal and you are looking forward to rehabbing and renting or selling. Either way, your excitement level is high and you’re ready to get started.

There are important steps to take before settling into the sofa in this new home and each one is very important and can have financial consequences.

  1. Negotiate the contract with the seller. If your transaction involves a realtor, he or she will supply the contract and handle the negotiation. If you are buying a property directly from the owner, we suggest you involve a Real Estate Attorney to assist you with the negotiations.
  2. Apply for funding. Immediately after the contract is negotiated, the buyer needs to make application at a reputable lender. Buyers will need to provide all necessary information to the lender such as income, assets, debts and credit history. In tight markets where houses are hard to find, it may be necessary to become approved for a loan before looking for a house so you can make an offer on the same day you find the one you want. The realtor will need to stay in constant contact with the lender regarding buyer’s application.
  3. Fully evaluate the property. The contract has a provision for “termination options”. The buyer pays a negotiated amount for the number of days necessary to complete their due diligence. A complete inspection of the property, including a termite inspection, should be ordered and paid for by the buyer from an inspector deemed to be an expert. After reviewing the inspection report, the buyer(s) has a right to request that the seller(s) address all concerns they may have about the property, which may result in a renegotiation, or even a termination, of the contract.
  4. Get the property appraised. The lender will require a property appraisal to make sure that its value is equal to or greater than the requested loan amount. The appraiser’s evaluation must prove that the property is worth at least as much as the buyer agreed to pay.
  5. Wait on loan approval! When the lender has completed the due diligence and made a decision on the loan, the buyer will be notified. The buyer’s agent as well as the seller’s agent should work to ensure that the lender has all the documents necessary and that all steps are taken in the loan approval process in order to avoid a delay in the closing.
  6. Select a title company, preferably one with a Board Certified Residential Real Estate Attorney, who will close the title or supervise the closing and has years of operational experience.
  • The title company does a title search and determines that the real estate title is legitimate and whom the title is vested in, so the buyer can be confident that he or she is the legal owner of the real estate.
  • This process includes searching for outstanding mortgages, judgments, liens, restrictions, leases, easements, unpaid taxes, or other encumbrances against the property that may affect ownership.
  • The title company will strongly recommend to the buyer to purchase title insurance in case the title examiner or other party had made a mistake in the title search or in case there is some unknown issue back in the chain of title, such as a forgery, for example. This insurance is another level of protection. If the buyer chooses (or if the seller is contractually obligated) to purchase the title insurance for the property, the title company then issues a title insurance policy. This insurance protects the owner and/or lender from potential claims or lawsuits that may result over ownership disputes.
  • Bring the following to the closing – valid photo id (driver’s license or passport), cashier’s check or certified check for the down payment and closing costs (never bring cash), proof of insurance, and the final purchase and sales contract. In case there is a small fee that was unanticipated, it is always a good idea to bring a blank personal check.
  • Expect to sign these and other documents at the title closing. (a) Closing Disclosure or HUD-1 Settlement Statement (multiple pages), (b) Warranty Deed, and (c) title company requested documents.
  1. Purchase homeowners’ insurance. If you are the intended homeowner, expect the lender to have pre-determined requirements. The seller’s agent should help the buyer ensure that proper coverage is purchased. If you are purchasing for cash or if you are a real estate investor, depending on the transaction, either you will purchase it or an end-buyer will acquire the insurance with you as an additional insured.
  2. Transfer utilities. It is prudent for the buyer and seller to make arrangements for the utilities to be transferred to the buyer if necessary, usually upon the closing date. Buyers may need to make application to the various utility companies.

CONCLUSION

Purchasing a house for yourself or as an investor is much more than one big step! It is a series of important actions that must be completed in order to ensure that you will be the lawful owner of the property, take only a suitable financial risk in securing funding, and that the property is in good shape to mitigate big surprises after you take possession.

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© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2017. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.

Gaylene Rogers Lonergan | The Lonergan Law Firm, PLLC                                escrow2@lonerganlaw.com | 214-503-7509