Commercial Real Estate: How Buying and Leasing Arrangements Work?

Most people who own commercial real estate requisition the services of agent to lease their property. Therefore, the real estate agent is responsible for representing the owner, not the tenant. The agent also represents buyers in the sales and purchase of this kind of property.


What You Need to Know When Buying a Commercial Property

If you are seeking a certain piece of commercial real estate, you need to ensure that the investment is a wise one. Depending on the kind of real estate and its age and location, there is a good deal of essential information that you need to know. Below some are the important points that you need to discuss with your real estate company or agent:


1 – Make Sure the Property is Clear of Any Liens or Encumbrances

First you need to make sure that the title is clear on the commercial property you are buying. Usually, an ownership and encumbrance report is obtained prior to submitting an offer to buy a property. During the period of due diligence, the purchaser is given a full title report, which also discloses liens.

Therefore, to safeguard your interests, ask to be granted a general warranty deed. This form is the best method for protecting yourself against any ownership challenges.


2 – Does the Property Have Insurable Access?

You also want to make sure that the survey conducted for the property matches the description for the property lines. Therefore, it is also important to obtain a property survey. Make sure there is insurable access to the real estate as well. Otherwise, you may come across future legal issues if you plan to finance, develop or sell your property.


3 – Is the Use of the Building in Compliance with Local Codes?

In addition, make sure that the zoning codes in your town will permit you to use the real estate as you propose. After all, you don’t want to spend precious time building up a business only to have it shut down because of a zoning code.


4 – Obtain a Building Inspection Report

While you are at it, you also have to check to see if there are any major problems with the building itself. That is why it is important to obtain an inspection report in order to detail any repairs that may need to be made. These repairs can include the electrical system, plumbing, roof, fire sprinklers, HVAC or elevator.

Any acquired paperwork that is related to any of these kinds of improvements will give you a better idea as to what the owner has neglected and maintained.


5 – Do Tenants Occupy the Building You are Purchasing?

Investors, naturally, want to know if there are tenants in a commercial space. If there are, you need to carefully scrutinize each lease contract and go over the tenant and landlord obligations. You should find out if a tenant’s rights include the right to relocate or buy, or if he has exclusivity. You also need to find out if the tenant has put down a deposit or paid any advance rents.


6 – Have You Received a Tenant Estoppel Certificate or Letter?

A tenant estoppel letter will assist you in determining these facts. The tenant estoppel, definitively, is a certified statement that is used to verify the conditions and terms of the status of a lease. Most CRE leases require that tenants provide an estoppel letter if requested.


7 – Acquiring a Tenant Log and Financial Reporting

You will also have to determine, if there are tenants, any facts concerning the rent roll. When commercial property sales are transacted, the rent roll serves as a tenant log as well as a list of each tenant’s charged expenses and deposits. This document is passed along from one owner to the next in order to ensure the accuracy of future bookkeeping for the building.

You also need a detailed reporting of the operating expenses for the property as well as other pertinent bookkeeping data. These kinds of records impact a real estate’s worth. Therefore, a seller should provide them upon request.


8 – How CRE Lease Transactions are Handled

Commercial real estate agents or CRE professionals, when working in the leasing industry, receive a commission when a lease is signed between an owner and tenant. The commission is usually calculated as a percent of the overall lease value and ranges, typically, between four and six percent. The owner pays the commission of the CRE agent – usually 50% upon the lease signing and 50% when the tenant occupies the space.


Some Questions to Ask if You are Leasing a Commercial Space

When leasing space in the CRE field, a tenant representative represents the interests of a tenant in a leasing arrangement while a leasing agent concerns himself with the owner’s concerns. Some agents will work in both capacities.

If you are seeking commercial space in which to rent then, you need to ask some of the following questions:

  • Is now a good time to move?
  • How important is the location?
  • How much space is needed?
  • How much space can the business afford?
  • What is a good move-in date?
  • How will the new space benefit the company in the future?
  • How much will it cost to move?
  • What else will be involved in moving (e.g., furniture, computers, phones, Internet access, etc.)

As you can see, whether you are buying a commercial property or leasing commercial space, you need to use the services of a CRE professional. Whether the agent represents the interests of the owner in the rental of real estate or assists the buyer in the purchase of such a building, the process can become quite involved. While you can make real estate offers and go through these kinds of transactions yourself, it is well worth the cost to be represented by an industry professional.