6 Steps to Negotiating a Commercial Real Estate Purchase for Businesses

November 2, 2023

Negotiating a Commercial Real Estate Purchase for Businesses

After years of success, your business finally has the capital and need to purchase its own commercial space. This huge investment represents an exciting milestone towards growth and stability.

But commercial real estate deals also come filled with complex negotiations and legal hurdles. Without the right guidance, you risk making a catastrophic mistake that burdens your company for decades.

Follow these 6 steps to strategically negotiate and close the optimal commercial property deal while protecting your business long-term.

RS Law Group has helped countless Pennsylvania real estate investors, developers, and businesses successfully prepare contracts and close on properties. Contact us now at 215-717-2200 or email us at co*****@********up.com for a free consultation. Our strategic approach ensures not only legal compliance but an advantageous set of closing terms as well.

1. Define Your Must-Have Property Criteria

Before viewing spaces, outline the features the property absolutely must have to meet your business activities and plans, such as:

Sufficient space – Current and future needs for square footage, storage, parking, etc.
Zoning – Proper zoning classification permitting your commercial activity. ForPhiladelphia Zoning Laws, be sure to check the zoning guidelines based on your business type.
Accessibility – Convenient location and transportation access for employees and customers.
Utilities – Adequate electric, water, internet and other utility capabilities and capacity.
Visibility – Prominent signage potential and visibility from main roads to attract customers.

Knowing your hard criteria keeps you from compromising and overpaying for less suitable properties. Working with one of the best Philadelphia-based commercial real estate attorneys assures your investment will be protected and in compliance.

2. Create Offer Strategy Based on Financing

Work with your lender and accountant to determine:

Purchase price limit – The maximum your business can afford based on financing and projected revenues and expenses in the new space.
Down payment – Available business capital and savings for the down payment, factoring in needed operating reserves.
Monthly costs – Loan amount and terms that fit business cash flow for the mortgage, insurance, maintenance, utilities, etc.

This financial foundation enables you to craft a competitive offer likely to appraise and qualify for financing approval.

3. Assemble Your Deal Team Early

A commercial real estate lawyer and broker/agent experienced with business purchases are essential to success. They provide guidance on:

Property valuation – Accurately appraising the property’s fair market value based on comparables, condition, and location.
Zoning and permitting – Ensuring correct zoning and options to get permits for business activities.
Inspection negotiation – Arranging thorough inspections and negotiating repairs or price credits for defects uncovered.
Contract terms – Adding protections like contingencies and representations of key facts into the purchase contract.

Their expertise prevents you from overpaying, buying noncompliant property, or accepting liability for hidden problems.

4. Make a Fair Initial Offer

Avoid very lowball offers most sellers will instantly reject or high offers leaving you overleveraged. Consider:

Recent sales of comparable properties – A competitive price aligns with recent sales of similar commercial spaces.
Seller circumstances – If the seller is under pressure to sell quickly, they may accept under market value. Offer at the higher end of the range in this case.
Property condition – Factor in costs you see for necessary maintenance and repairs.
Inclusions – Reduce offer if excluding buildings, equipment, or excess land the business does not need.

5. Negotiate Optimal Contract Terms

With help from your lawyer, negotiate beyond just purchase price by adding key terms into the purchase contract like:

Inspection period – At least 30 days to thoroughly assess the property’s condition.
Right to terminate – Ability to cancel the contract and recover earnest money if inspections uncover deal-breaking defects or information differs significantly from representations.
Title contingencies – Seller must provide clear title transferable to the buyer.
Possession date – Sufficient time to complete repairs, obtain permits, and relocate before taking ownership.
Seller representations – Fact statements about property history, operations, and accounting for any issues upon taking ownership.

6. Maintain Leverage Until Closing

Avoid actions weakening your negotiation position until the sale is finalized, like:

Sharing information – Limit disclosing business financials, strategic plans, or costs previously incurred evaluating the property.
Making concessions – Stick to positions on key provisions unless the seller reciprocates with meaningful compromises.
Accepting verbal agreements – Enforce the written contract and be wary of verbal concessions that lack legal binding.
Celebrating prematurely – Stay focused on due diligence and neglected issues until the transaction fully closes.

With preparation and persistence, you and your attorney can negotiate the optimal commercial property deal upon closing, structuring your business for success.

Finding a Commercial Real Estate Lawyer for Your Business

Purchasing or leasing commercial real estate is a complex balancing act requiring financial, legal, and negotiating skills. While the process is serious, take time to celebrate this milestone of control and stability for your growing company. With the right property transaction advice, you will secure the perfect space to house your business for decades to come.

Frequently Asked Questions About Commercial Real Estate Purchases

What legal entity should hold title to my commercial property?

Discuss with your attorney, but most businesses purchase commercial property under an LLC for liability protection. The operating business leases from the LLC owner.

What costs beyond the purchase price should I budget for?

Plan for closing costs, inspection fees, moving and relocation costs, initial repairs and renovations, utility deposits, legal fees, land transfer taxes, and at least 6 months of operating reserves.

What financing options are available for commercial real estate purchases?

Commercial lenders offer conventional business loans requiring 20-30% down payment. SBA 504 and 7(a) loans provide more favorable down payment and terms.

Should I use a real estate agent when buying commercial property?

Yes, commercial agents are invaluable for guiding site selection, property valuation, negotiations, due diligence, and closing. We are happy to provide recommendations on some of the best in Pennsylvania.

Who typically pays brokers’ commissions for commercial deals?

Commissions are traditionally split between the buyer’s and seller’s agents and paid by the seller at closing. But this is negotiable.