Understanding
the differences between commercial real estate contract language or
terminology is an obvious important step to being successful in
commercial real estate investing. This article explains a few terms
and their use in a commercial real estate contract.
Commercial
real estate contract language or terminology is different in many
ways from what you may be used to seeing in a residential deal.
Listed below are a few of these terms. You should become familiar
with these terms, what they mean, and how and why they are used in a
commercial real estate contract.
Representations
and Warranties In
a residential closing, everyone buys homeowner’s insurance because
the Seller’s representations and warranties expire at the closing,
unless you insist that they don’t. These are the property facts to
which the Seller alleges in the sale, such as a solid roof or that
no illegal action, including legal cases, are threatening against
the property. Always include a representations and warranties clause
in your contract that the Seller must live up to even after closing.
Although
most commercial sellers won’t warrant the roof, sometimes they’ll
warrant the structure. For instance, they might say that although
there are cracks in a certain wall, they had testing done. They
would give you a copy of that test, and agree to stand behind the
safety of the wall. Any warranty that the Seller makes to you should
survive the closing.
Commercial
Closings The
closing, like the inspection period, is based on a formula. It
starts at the end of the inspection period, so it’s like a moving
window.
Brokerages Your
contract must contain language regarding any brokerages involved. If
this inclusion is not applicable, each of you wants to hold the
other side harmless. This protects both Buyer and Seller if a
finder’s fee suddenly appears or a broker shows up at the closing,
making unexpected claims.
If
any brokers are involved in the deal, the contract should list each
broker’s name and indicate the manner of payment. Often, they may
be paid based on a separate agreement between Seller and Broker.
Key
Point: Many
people write contracts for themselves with no broker language. Even
if the broker clause is not applicable, include the broker language
in your contract.
Assigning
a Contract Many
contracts will either not have any assigning ability checked or
include no assigning ability at all. If there’s a specific
paragraph that says the Buyer may assign the contract, the Buyer may
freely assign it. However, if the signed contract has no assignment
clause, then it is assignable. You don’t have to include an
assignment clause. Tip: To be safe, always include the assignment
clause and specify whether it can be assigned.
These
were a few extra commercial real estate contract terms, I felt were
important to list in addition to the list I provided in another
article posted earlier. If you like what you read or learned here, be
sure to review the other article for a continuation of sorts about
commercial real estate contract language and how to use it or
interpret these items as you move into the commercial realm of
investing.
One Deal to Financial Freedom? Gary Tharp invites you to get access
to ask the real estate experts who are mentors to millionaires today!
Attend the next free commercial real estate webinar with some of the
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Gary
is widely regarded in commercial real estate, having developed tools
and systems of commercial property evaluation that have become industry
standards used by professionals nationwide.Gary is Florida Partner for
the Lynxs Group, national developer of air cargo facilities, Fellow of
the faculty of the CCIM Institute, and Board of Advisor with HIS Real
Estate Network, commercial real estate buying group.
