Commercial property transactions are considered to involve more complexity and risk than residential transactions. Although the purchase or rental of a residential property may involve personal and emotional considerations for the parties involved, the implications of commercial realty transactions are far-reaching. Commercial transactions can cause significantly large impacts on the long-term viability of the business. The slightest mistake in a commercial realty agreement may cause disputes that may halt the operations of the business and even end up in the courts.
The thing is that commercial contracts are always slanted in favor of the party that drew them up unless they have been negotiated specifically for the purpose of safeguarding the interests of the other party. It is a problematic situation for buyers, sellers, landlords, or tenants who may not be cognizant of a potentially detrimental provision in a contract. Moreover, New Jersey has specific regulations regarding zoning laws, property disclosures, and other local statutory requirements that may be specific to this particular state.
In this regard, the importance of contract review from the aspect of risk management cannot be overemphasized. In fact, if matters in regard to contract review are not handled in the correct manner, simple errors may culminate in substantial losses being incurred. This is where sound legal counsel by a Commercial Real Estate Lawyer can make a huge difference.
What Does A New Jersey Real Estate Closing Attorney Do?
The Commercial Real Estate Lawyer represents the client in New Jersey real estate transactions in a much more substantial way than just reading the fine print. Indeed, a lawyer is more than just the individual who reads the fine print to verify that the language is technically accurate. The lawyer analyzes the larger implications of the agreement, such as liability, operational, and state laws.
“One of the major differences between legal advisers and brokers is that the former are primarily concerned with overseeing the transaction from a legal and risk perspective, while the latter are primarily concerned with facilitating the transaction,” notes Ira Shah. “While the broker may help facilitate the financial aspects of the agreement, he or she must also ensure that you are not subjected to potential liabilities,” says Ira Shah.
Lawyers anticipate areas where there may be disputes before these disputes arise by highlighting areas within the agreement that may give rise to disputes at a later date. This engagement goes beyond ensuring that there are no mistakes, but also ensuring that your interests are protected.
Common Contract Errors That Cause Pricey Disputes
Certain aspects of commercial property contracts are prone to generating more problems than others, which, in turn, may lead to costly and time-wasting disputes. Among the common issues associated with commercial property contracts, which may often lead to costly and time-wasting disputes, are ambiguous lease provisions with respect to such issues as maintenance responsibilities, operating expenses, default, termination, or renewal provisions, among others.
- Maintenance and Repair Provisions: Maintenance and repair provisions are a common point of conflict between landlords and lessees. Without sufficient specificity, such provisions can create tensions regarding the allocation of particular maintenance or particular expenditures on the part of the lessee or the landlord. Similarly, operating expenses such as common area maintenance fees must also be defined properly to avoid any conflict on the allocation of such expenditures.
- Representations, Warranties, and Disclosure Obligations: Some common errors include poor wording of representations, warranties, and disclosure obligations, particularly in purchase agreements. If the buyer and seller fail to pay attention to the clauses in the purchase agreement, it may lead to a lawsuit and loss of money even after the closing process.
- Contingencies and Termination Rights: Finally, the absence of contingencies, like financial contingencies within purchase agreements and termination rights within lease agreements, may put clients at risk of unforeseen losses. Such mistakes frequently cause litigation that may very easily be avoided through scrupulous legal due diligence.
Lease Agreements: Small Clauses, Large Impacts
In commercial tenancy agreements, seemingly minor issues can sometimes create major disputes for both landlords and tenants. In residential tenancy agreements, there are generally many more normalized issues, but this is not the case with commercial tenancy agreements.
- Escalation Clauses and CAM Charges: Commercial leases in the state of New Jersey usually contain escalation clauses and CAM charges, which may increase the rent over time, as well as charges for property maintenance. These charges have to be established in clear terms to prevent any surprises. If not, tenants may end up with increased costs, while landlords may fail to collect charges effectively.
- Exclusivity Clauses and Use Restrictions: Exclusivity clauses and use restrictions are also present in commercial leasing and can prove very important in affecting how a business can function in the leased location. Exclusivity clauses define the bounds of how a lessee can utilize the leased location and how other lessees can utilize the shopping center. Ineffective exclusivity and use clauses can prove detrimental in defining how a lessee can function effectively on the leased location.
- Tenant Improvement Obligations: Another area where disputes regularly occur in commercial construction contracts involves tenant improvements. An agreement regarding tenant improvements will determine responsibility concerning improvements to the leased area. In the absence of definitions, there may be disputes between the two in regard to what constitutes tenant improvements.
Purchase And Sale Agreements: Where Liabilities Are Usually Hidden
When acquiring or selling investment properties, the purchase agreement is the key agreement that determines the terms and conditions for the acquisition and the potential liability that may arise thereafter. The aforementioned agreements have to define the risks that occur both before and after the acquisition to prevent the acquisition party from experiencing unexpected expenses. This may not happen when the agreement is not properly monitored.
- “As-Is” Clauses: For instance, the “as-is” clause can also be used in the purchase agreement, such that the buyer is obliged to accept the land or property as is. Although this is normally the case, the individual can be exposing the land or property to certain problems, such as environmental hazards, without knowledge. This is because the commercial real estate attorney will examine the title report as well as the zoning laws.
- Finance Contingencies: Moreover, the issue of finance contingencies plays an essential role in protecting the buyer. Finance contingencies ensure that the possible buyer does not find himself/herself in a contract that he/she cannot afford. In other words, if financial contingencies are ignored, a party could find himself/herself in financial stress.
- Enforceability of Clauses: A Commercial Real Estate Lawyer also makes sure that each clause is enforceable and explains the responsibilities of all the parties clearly, thus eliminating any surprises and threats to your business.
Due Diligence Mistakes That Can Invalidate Contracts
Due diligence is an important part of being part of a commercial real estate transaction. Contracts are contingent on true assumptions. If due diligence is not done, that could lead to danger down the line. An incomplete property history or inaccurate information may put you at risk of issues that you are not ready to handle.
For a person buying property in the State of New Jersey, the matters relating to zoning and land use become very relevant, as there may be certain requirements by the local body that may go on to affect the usage of the property. A Commercial Real Estate Lawyer can identify any potential problems, such as a violation of zoning statutes or unauthorized alterations to the property.
In fact, due diligence involves conducting an assessment of the property, gaining entry to the property, timing of property inspections, or the right to terminate an agreement if there are any concerns. This involves coordination between legal advisors to ensure that the deal cannot be considered unsuccessful.
Negotiation: The Role of Risk Reduction
Good negotiation involves more than just ensuring that one gains the better end of a bargain; it involves risk management. A skilled lawyer can determine which aspects of a contract can or cannot be negotiated. Some things must be weighed against one’s interests, which a lawyer will do to avoid possible conflicts at a later stage.
Without representation, business owners often find themselves waiving rights and agreeing to contract provisions that may place them at risk. A party’s silent acquiescence to a contract provision may be deemed a waiver of a right. A lawyer will review and approve all contract provisions to be favorable to his client and prevent future litigation.
New Jersey-Legal Matters Influencing Commercial Contracts
When it comes to commercial real estate transactions, there are several state laws and regulations in New Jersey that can significantly influence deals. These laws can relate to everything, including zoning, taxation, and other matters.
Such standard contract templates are unaware of these factors and can put your business at risk. For example, different interpretations of laws in local courts can affect how clauses, including those concerning tenant improvement allowances and rent escalation, are enforceable. A commercial property attorney based in New Jersey can help you deal with these and ensure that your contract adheres to all laws.
How Legal Review Can Help Avoid Litigation Before It Occurs
One of the most effective methods for avoiding litigation is through accurate contract language. The lawyer’s responsibility begins with the identification of areas where conflict may arise, and remedies, damages, and dispute resolution clauses must be clearly stated. This will minimize the risk that the agreement may encounter during a transaction.
Contracts are where disputes often begin. If a contract has vague or uncertain terms that are subject to interpretation, this is a certainty. Your lawyer can make sure that your contracts can be enforced by properly defining any and all rights and remedies.
Myths Related To Engaging A Commercial Real Estate Attorney
- Legal Review Is Not Required: The first myth might be that the legal review process is not required/or that the process will delay the transaction. Just the opposite. The earlier the legal professional has the ability to identify concerns, the less costly the transaction may end up being.
- Brokers or Pre-Existing Templates Are Sufficient: Secondly, the use of brokers or pre-existing templates to facilitate complex commercial transactions would also be a misunderstanding. Although brokers are important for facilitating a transaction, they do not possess the ability to recognize any potential legal risk. Moreover, legal advisors ensure that the contract is drafted from the perspective of the business and legal aspects as well.
Conclusion: Legal Strategies For The Business Advantage
Commercial real estate agreements are inherently high-risk, but with the right legal representation, those risks can be effectively mitigated. Engaging the services of a commercial real estate lawyer in New Jersey will ensure that every detail in each agreement is considered, every risk removed, and every choice made in accordance with the long-term objectives of the business. The Law Office of Barry E. Janay (LOBEJ),and similar legal firms are fully cognizant of the interplay between commercial acumen, legal expertise, and risk management and are in a position to provide the necessary guidance for their clients in completing such complex transactions. Should you find that you are party to a transaction that incorporates a commercial real estate agreement, you must ensure that you are properly protected.
