Commercial real estate contracts are complex legal agreements that define the rights and responsibilities of buyers, sellers, landlords, and tenants. Because these contracts often involve significant financial commitments, it is crucial to understand exactly what you are agreeing to before signing. Reviewing key terms carefully helps prevent disputes, protect your investment, and ensure the property meets your business needs. Below are the most important areas to watch in a commercial real estate contract.
Understanding the Property Description and Use Terms
A commercial real estate contract should clearly describe the property, including boundaries, square footage, zoning classification, access rights, and permitted uses. The zoning designation determines what type of business activity can legally occur on the site. Before signing, verify that the property’s zoning aligns with your current and future plans. If your business may expand or change operations in the coming years, ensure the contract allows for flexibility.
Purchase Price, Payment Terms, and Contingencies
For buyers, the most fundamental sections are the purchase price, deposit requirements, and financing terms. These should be clearly spelled out with deadlines you can realistically meet. Contingencies are equally important. Common contingencies include financing approval, inspection results, appraisal valuation, and environmental review. These clauses protect buyers by allowing them to exit the contract without penalty if certain conditions are not met.
Inspection and Due Diligence Clauses
Strong inspection provisions protect buyers and tenants by giving them the right to thoroughly examine the property. Due diligence may include structural inspections, HVAC and electrical evaluations, ADA compliance assessments, and environmental testing. Commercial properties often carry risks such as asbestos, mold, or soil contamination. A well-structured contract should include a timeline for inspections, the right to request repairs, and the ability to withdraw if significant issues are discovered.
Lease Terms and Operating Expenses
For commercial tenants, lease contracts require detailed review. Important terms include rental rates, escalation clauses, operating expenses, and common area maintenance fees. Many leases require tenants to pay for insurance, property taxes, or repairs in addition to base rent. Understanding these obligations ensures you can accurately estimate the true cost of occupying the space. Clarify responsibilities for HVAC repairs, plumbing issues, and structural maintenance to avoid unexpected expenses.
Default and Termination Provisions
Both buyers and tenants must pay close attention to the default and termination sections. These clauses outline what happens if either party fails to meet its obligations. The contract should define grace periods, notice requirements, penalty fees, and conditions that allow for early termination. Understanding these provisions helps you avoid costly legal problems later.
Why Legal Review Matters
Commercial real estate contracts contain legally binding commitments that can significantly impact your business finances and operations. Having an experienced attorney review the agreement ensures that the terms are clear, fair, and aligned with your goals. The commercial real estate attorneys at SBEMP help clients identify hidden risks, negotiate favorable contract terms, and protect their investments throughout the transaction.
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DISCLAIMER: This blog post does not constitute legal advice, and no attorney-client relationship is formed by reading it. This blog post may be considered ATTORNEY ADVERTISING in some states. Prior results do not guarantee a similar outcome. Additional facts or future developments may affect subjects contained within this blog post. Before acting or relying upon any information within this newsletter, seek the advice of an attorney.