San Jose Business Lawyers Blog

Articles Posted in Real Estate

Even seasoned business professionals can benefit from having legal counsel on their side when making a purchasing decision. Here are 3 advantages of hiring an experienced lawyer to help when purchasing real estate commercially.

3 Advantages of Hiring a Lawyer for a Real Estate Purchase

 

 

1. Determine State-Specific Laws

Real estate purchases are overseen by state laws, not federal and in some cases both. In order to comply with city and state requirements, an experienced Silicon Valley commercial real estate lawyer should help oversee all commercial real estate purchases. Some local jurisdictions have laws that one could not imagine.  Often these laws impact uses that are a material consideration for your business.  Structure Law Group’s experienced team is well-versed with the ins and outs of California real estate law.

 

2. Navigate Zoning Requirements

Local laws and zoning requirements are complex and can very well limit the uses on the property you are considering. In order to avoid making a costly mistake, a commercial real estate lawyer can advise you on the viability of your proposed use of the property.

 

3. Avoid Costly Mistakes

A simple mistake or omission in a real estate purchase contract can have tremendous implications for both the buyer and seller. Take the time to hire an experienced real estate attorney to guide you through your purchase, the earlier in the transaction the better.

About Structure Law Group, LLP

Structure Law Group is a San Jose based law firm that serves its clients’ business, employment and real estate needs, including but not limited to business formations, debt and equity investments, employment agreements, commercial leasing and purchases, commercial contracts and related litigation.

Commercial real estate transactions can be lucrative investments, however there may also be high risk due to the amount of money that is generally at stake. The following are some examples of legal issues that sometimes arise during the sale or purchase of commercial property.

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  1. Accurate property valuation

When you are shopping for a product, it is often relatively easy to compare the price and quality to another similar product. However, pieces of real estate are often unique with no exact comparison based on size, age, use, and/or state of the building or land, making accurate valuation significantly more challenging. In addition, any current income stream or potential for future income associated with commercial property should also be a factor in determining a fair and reasonable price. Utilizing an experienced commercial appraiser can assist both buyers and sellers with determination of value.

 

  1. Due diligence

Just like any type of business transaction, commercial real estate transactions require considerable investigation. This allows a buyer to know exactly what is involved in the transaction and sheds light on any potential problems with their intended use. For example, you want to make sure that the zoning for the property allows your intended use, title of the property will identify liens, and easements, and identifying the property corners will assist in identifying possible encroachments.  Hiring an experienced attorney will assist you in avoiding costly errors.

 

  1. Assumption of liability

Prior to purchasing a piece of commercial real estate, you will want to make sure you are not assuming liability for any violations of law that may exist. For example, if you buy the property and then later find out that environmental hazards exist, you will be liable for eliminating the hazard whether or not you or the previous owner actually caused it. Such liability may be expensive and the potential for it should be examined prior to closing a sale.

 

  1. Evaluation of financial risk

Real estate can be a great investment for your business, though such purchases can also tie up a significant amount of liquid assets for a lengthy period of time. If you have difficulty filling vacancies or collecting rent from tenants, you may not be able to make your required payments to your financing company. Additionally, if you decide to sell the property due to financial struggles, it may take some time especially if the market is down. All of these long-term risks should be evaluated before you close any type of commercial real estate transaction.

 

Commercial real estate transactions can be very complicated and the above are only some examples of legal issues that must be addressed. If you are considering purchasing or selling commercial real estate, you should discuss your situation with an experienced real estate attorney at the Structure Law Group, LLP as soon as possible. Call us at  408-441-7500 for help today.

Historically, only general or limited partnerships were used for investing in real estate, but over the past decade, forming a Limited Liability Company (an “LLC”) has become a more popular choice for real estate investors. An LLC formed for real estate investment purposes is not very different from a regular limited liability company, and the steps for formation are very similar. Here are 4 benefits of using an LLC instead of a partnership or a corporation for real estate.

LLC - Purchaseing REal Estate

 

 

 

 

 

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Landlords and tenants may come head-to-head in property disputes when an occupant breaks the rules of an their lease agreement. Knowing how to navigate a potential breach of lease is important for landlords when dealing with tenant issues.

Tearing contract

What is Breach of Lease?

A real estate lease is a contract that outlines the landlord and tenant’s responsibilities regarding the occupancy of the property. Tenants are obligated to follow the rules of a lease agreement or the landlord has just cause to terminate the lease and evict them. A breach of lease is when activities occur that violate the terms of the lease agreement. Here are 3 tips for landlords experiencing issues with tenants. Continue Reading

Commercial real estate transactions can be lucrative investments, but there may also be high risk due to the amount of money at stake. The following are 4 examples of legal issues that sometimes arise during the sale or purchase of commercial property.

realestate transactions

  1. Accurate Property Valuation

When you are shopping for a product, it is often easy to compare the price and quality to a similar product. However, pieces of real estate are often unique with no exact comparison based on size, age, use, and/or state of the building or land, making accurate valuation significantly more challenging. In addition, any current income stream or potential future income associated with commercial property should also be a factor in determining a fair and reasonable price. Utilizing an experienced commercial appraiser can assist both buyers and sellers with determination of value. Continue Reading

An NNN Lease, commonly referred to as Triple Net, is a commonly used commercial lease structure that requires the tenant to pay, in addition to its monthly rent, all costs associated with the operation of the building. Here is an overview of Triple Net, or an NNN Lease, and key concepts to be familiar with.

Real estate sale

What Is Triple Net?

Any number of costs can fall under a net lease, but Triple Net generally refers to the payment of property taxes, maintenance costs and insurance premiums, in addition to the base monthly rent. A Triple Net lease differs from a gross lease in that a gross lease is for a flat monthly amount, inclusive of all operational costs. Continue Reading

Purchasing real estate for investment purposes can be an excellent decision for individuals and businesses alike. Real estate tends to appreciate over the long-term, and both residential and commercial investment properties can generate significant rental income while building equity. Unfortunately in spite of the benefits, investment properties can also expose investors to significant legal liability as well.

Whether your property is an apartment building or a retail lot, issues that commonly arise within a building all have the potential to cause serious injury or financial loss. Fortunately, forming an LLC can help limit real estate investors’ personal liability and protect them from potential financial disaster.

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LLCs Protect Investors from Personal Liability

An LLC, or limited liability company, is a type of business formation that combines the liability protections of a corporation with the flexibility afforded by a partnership. They are particularly attractive to smaller companies and individual investors. LLCs can be owned by individuals or other businesses. Continue Reading

5 Items to Include in a Real Estate Purchase Contract

When you make an offer on real estate you want to buy, there can be a lot of paperwork involved. Many additions to real estate purchase contracts are obvious, such as the address of the property, purchase price and owners. Here is a list of 5 things to consider and include when drafting a real estate purchase agreement.

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1. Legal Description of Property

Be sure to include a legal description of the property, including zoning information. In commercial real estate, this is more than just the mailing address of the property. Legal descriptions must include proper nomenclature used by the U.S. Public Land Survey System, including zoning codes. If the description is not included, the real estate contract may be invalid.

2. Closing Costs

You want to establish who pays closing costs in the real estate purchase contract. The buyer and seller should specify who is responsible for common fees such as escrow fees, title fees, title insurance, transfer tax and notary fees. If you want the seller to pay all or part of the closing costs, make sure to specify this in your offer. In California, the location of the property is used to determine how fees are divided.

3. Inspection Contingency

Make sure to include an inspection contingency in your purchase contract to protect yourself if a serious issue with the property comes to light after an inspection is conducted. This includes the buyer’s right to cancel the sale after conducting due diligence.

4. Closing Date

Common time frames for closing dates are 30 days, 45 days and 60 days. You should allow sufficient time for closing contingencies, including financing the transaction.

5. Right to Modify Purchase Agreement

Allow yourself room to amend or modify the purchase contract after its completion. By adding a clause allowing the right to amend of modify, both parties may amend the purchase contract after it has been completed. Keep in mind that this does not change the original contract and large amendments are usually better done by creating a new contract.

By including these essential items in your real estate purchase contract, both the buyer and the seller are protected and the purchase is transparent for both parties. Be sure to sit with an experienced real estate lawyer before making final decisions.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

lease.jpgWhether you’re starting a business or looking to expand, chances are you’ll encounter some kind of lease. The most common are the gross lease and the net lease. In this blog post we’ll take a look at the differences between the two and the benefits of each.

Gross Lease

In this scenario, the tenant pays a fixed amount each month. The landlord is responsible for the costs associated with property taxes, insurance and maintenance. A gross lease offers some flexibility because these properties are generally deemed as either Class B or Class C. They’re less desirable so the landlord may be willing to negotiate over things like who pays the utility bill.

Net Lease

You’ll likely see a net lease in properties deemed Class A. These are typically high value structures in a popular part of town. As such, tenants can expect to pay a fixed amount along with maintenance charges, insurance and taxes. The benefit to you as a business owner is exposure and the possibility of working in a new, less problem prone building.

Letter of Intent

Before you sign a gross lease or net lease, it’s a good idea to craft a letter of intent. This document typically addresses issues like length of the rental, when the space is available and whether or not expansion is possible. You’ll want to have a lawyer look over any lease documents. The professionals at Structure Law Group can help you craft a suitable letter of intent that protects your interests.

There is plenty more to consider when crafting a lease. At least now you understand the key differences between the two main types of commercial leases. This information will help you when you’re coming up with a budget for your business. Knowing these costs up front eases some stress and makes it easier to get started.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

At a recent conference with San Jose and Silicon Valley real estate owners and lenders, Attorneys Jack Easterbrook and Tamara Pow presented their “Top 10 List” of issues that commonly arise in commercial real estate loan transactions. Having been involved in countless real estate and commercial loan transactions, Tamara and Jack developed the list to share with the participants key points to be attentive to when entering into a real estate transaction. The Top 10 List assumed that the basic business terms of the transaction had been decided, so the focus was on items that can arise in the documentation phase and create issues or obstacles in getting a deal to closing.

A previous blog presented three items from this Top 10 List, including: (1) inconsistency between a borrower’s state of registration and a lender’s requirement; (2) the special purpose entity and the independent direct/manager requirements of the lender; and (3) the personal guaranty. Here are three more items to keep in mind when negotiating a commercial real estate loan:

No. 4: Treatment of Other Creditors, Including Any Mezzanine Lender.

Comment: Are other creditors or lienholders involved, and will intercreditor or subordination agreements be necessary? If the answer is “yes,” these agreements will need careful scrutiny. The recent trend in the case law continues on the path of strictly construing the terms of such agreements. This includes Bank of America v. PSW NYC LLC, in which it was held that an agreement between a senior secured lender and a mezzanine lender prevented a foreclosure by the mezz lender until it cured payment defaults in the senior secured lender’s loan. The bottom line: other creditors of the owner/purchaser, whether new or existing when the deal is done, can significantly affect getting a transaction to closing. It is very worthwhile to have a strategy concerning them worked out early.

No. 5: Prohibition on Transfers, Including Transfers of Fractional Interests in a Borrowing Entity.

Comment: Standard loan documents often contain language that says that the borrower is in default if the property securing the loan, or any interest in the property, is transferred. However, an owner or borrower should not think it is safe from this provision if the title to the property is held in an entity, such as an LLC, just because the title is not changing. Many loan documents also provide that if an interest – perhaps even a small interest – in the ownership entity changes, a default is triggered. An owner or borrower is wise to not ignore these provisions. Borrowers should carefully consider whether they will need to (or want to) transfer partial ownership interests in the future and lenders should consider the magnitude of such changes that may be acceptable. A transfer of an ownership interest could occur as a result of estate planning needs, in connection with a management transfer, or perhaps the unforeseen death of someone in an ownership group, such as an LLC member. If the parties don’t address these provisions before loan documents are finalized, subsequent events may trigger an unexpected and immediate default with unknown future implications.

No. 6: Prohibition on Changes in Management of the Borrower.

Comment: Are the borrower’s short-and medium-term management plans prohibited by the loan agreement? Make sure the loan documents accommodate planned future changes in managers of the owner. For example, a family owned LLC may be intending to pass management to the next generation or a key employee long before the maturity date of the loan. Like prohibited transfers of ownership interests, loan documents may prohibit transfers of management power. Pay attention to these provisions and make sure intended changes are not prohibited by the loan documents. It may also be prudent to have potential future managers pre-approved by the lender.

Watch for our next blog for the remaining items addressed in the presentation.

The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to the author.