Navigating a commercial real estate transaction is complicated, as there are many steps and moving parts that comprise the process. These transactions are governed by the contracts executed by the parties, which, oftentimes are “form” agreements drafting by trade organizations, like, for instance, the Arizona Association of Realtors.
Oftentimes, the commercial real estate purchase process is full of pitfalls and should be maneuvered even more carefully than when purchasing residential properties. An experienced Arizona commercial real estate attorney will represent your legal interests and help you avoid costly mistakes. Before you sign on the dotted line, make sure you fully understand your Arizona commercial real estate purchase contract. Here are some helpful pointers.
Using a Commercial Real Estate Letter of Intent in Arizona
A commercial real estate letter of intent is a document exchanged between a prospective buyer and a seller that typically begins the transaction process. The letter of intent, when drafted properly, is not legally binding but does detail the prospective buyer’s plans for the property and the terms of the sale.
Some property owners may ask the buyer to sign the letter of intent after reviewing it. If the buyer executes the document, it could become legally binding if not handled with care. This possibility alone illustrates the importance of consulting an experienced Arizona real estate lawyer before signing any legal agreements.
Once the commercial real estate letter of intent has been reviewed by both parties and signed if appropriate, the purchase can move on to the execution and negotiation of the purchase and sale contract and the due diligence process.
The Due Diligence Process
Oftentimes, the buyer performs due diligence of a commercial real estate asset before a real estate contract is even executed. Sometimes due diligence comes after the execution of the purchase contract. The information obtained during the due diligence process will influence the way the purchase contract is written.
Buyers and their brokers should research the property’s history and pertinent area and determine why the owner wants to sell. They should also be up-to-date on city codes and zoning, plus ADA guidelines or deferred maintenance that could deem the property unsafe or costly to fix. The property must be able to pass inspection, and the new owner should be warned of any potential environmental hazards or planned developments that could affect market value and rent value.
Arizona Real Estate Contract Law
Per A.R.S. § 44-101(6), an enforceable commercial real estate purchase contract must be in writing and signed by both parties. The agreement shall contain an offer, acceptance, monetary considerations and specific details so all parties understand their obligations.
These are the significant components of a commercial real estate contract that should be understood:
- Property description outlines who owns the property, provides the legal description of the property and other key details of the make-up of the property at issue.
- Fixtures and personal property detail what exactly is being sold. Fixtures are included in the sale of the property, whereas personal property may not be included.
- The escrow process addresses the name of the escrow and the title company handling the transaction.
- Disclosures details that the new owners must be made aware of before purchasing.
- Warranties describe which items, like an HVAC system, will be covered by a warranty after close of escrow and which will not and describe certain basic assumptions for the transaction being made by both the seller and the buyer.
- Due diligence refers to the property inspection and other research detailed above.
- Remedies outline actionable steps in the event of a breach of contract.
- Additional terms and conditions cover risk of loss and other miscellaneous details.
- Seller acceptance completes the document and can either finalize the purchase or start additional negotiations.
Find an Experienced Commercial Real Estate Attorney
At MacQueen & Gottlieb, we have represented clients with complicated commercial real estate transactions in Arizona. Our attorneys can draft a commercial real estate letter of intent that will allow you to start the negotiation and due diligence period on a property without legally binding implications for the purchase or sale of that property. Contact us today at 602-562-7218 to schedule an initial consultation or make an appointment online.