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Key elements to scrutinize in commercial real estate contracts

On Behalf of | Jun 28, 2024 | Business Law

When dealing with commercial real estate, whether you’re leasing a shop for your new business or buying an office building, the contract you sign is incredibly important. It is helpful to understand the key elements you should always check carefully before signing on the dotted line.

Lease terms

Ensure lease terms are clearly outlined, including rent amount, escalation clauses, lease duration, and renewal options. Check for any restrictions on alterations, subleasing, or use of the property.

Financial obligations

Scrutinize financial obligations such as security deposits, maintenance costs, and utility payments. Understand the consequences of defaulting on payments and any penalties involved.

Property condition

Inspect the property’s condition thoroughly and verify any promised repairs or renovations. Clarify responsibilities for maintenance and repairs between the landlord and tenant.

Compliance and regulations

Confirm that the property complies with zoning laws, building codes, and environmental regulations, which are essential aspects of commercial real estate law

Termination and dispute resolution

Review early termination terms, penalties, and notice requirements. Understand the dispute resolution process, including arbitration or mediation clauses.

Identify the agreement and parties

Provide a clear title for the agreement (e.g., “Distribution Agreement”), and accurately describe the parties using their full legal names, addresses, and assigned names (e.g., “Client”). It is also important to say exactly when the agreement starts.

Key business provisions

Review material terms related to services, pricing, payment, exclusivity, territory, ordering procedures, and return/refund policies. Ensure conformance with agreed-upon points.

Due diligence

Remember to review loan options that work for the property. Make sure there aren’t any debts tied to the property’s ownership. Also, ensure that the property’s value matches the agreed-upon price.

Navigating a commercial real estate contract can be complex, especially with legal jargon and intricate clauses. Understanding the key elements to examine can help you remain focused and spot potential problems.