As a new investor or perhaps you are a experienced real estate investor working on a complex deal, you may consider it necessary to use an attorney during your commercial real estate transaction. There are a few things you need to consider before you engage the services of a commercial real estate attorney.
How Do Attorneys Help Commercial Real Estate Investors?
First and most important, they help identify, negotiate and manage the risk. This is why it is ideal to find not only a commercial real estate attorney but also one whom invests in commercial real estate.
The attorney will help you draft and negotiate the contract. You would not think about performing heart surgery without the proper education and experience, yet many students try to document their own commercial transactions without the proper experience and without using an attorney.
Usually it ends up costing them because they lose their earnest money deposit or they spend more on due diligence expenses because they did not write the contract correctly. Next, attorneys will look at the facts and the laws objectively. Since they are not emotionally involved, they are able to ask the right questions.
Last, utilizing a commercial real estate attorney takes the worry out of the transaction. You know that you have the proper documentation in place and that you are protected by the law.
When Do You Hire A Commercial Real Estate Attorney?
First, look at the complexity of the transaction. If you are issuing a standard Letter of Intent (LOI) it is unnecessary to incur the costs to engage an attorney. However, when you are getting ready to go to a purchase contract you should definitely engage a commercial real estate attorney, because it is critical that your contract covers all the stipulations of your due diligence and closing requirements.
Next, look at how much risk is associated with the transaction. On an apartment lease, it is unnecessary to have an attorney draw up each lease for each new tenant that you get. In this case, you can use a standard lease that is drawn up one time by the attorney. When you are negotiating a ten year lease with a national tenant, it is important to dot your “I's” and cross your “T's”, so an attorney needs to be involved.
If you are initiating a standardized procedure which will be utilized over multiple projects, it makes sense to invest the money one time. This way you know legally you have it properly documented. I have done this to standardize my leases, my Letters of Intent and my construction contracts.
If you feel that your negotiations are becoming emotional, a commercial real estate attorney needs to be involved. An attorney can make it more mutual between the parties involved because they are looking at each point with no emotions. This is not only helpful when trying to resolve a dispute but it is also helpful when negotiating a lease or purchase contract.
Last, when timing is critical and dead lines need to be met, an attorney can make sure a seller is staying on course. We have experienced this when a seller drags their feet and we need something from them in order to present to a zoning committee. The attorney can legally force them to get it done. They can also make sure that you do not lose a deal or your earnest money. If you miss a closing date but are working toward the closing, the attorney can buy you some time so that you get the deal closed.
How Do You Find the Right Attorney?
In order to find a good commercial real estate attorney, look into their reputation, by checking not only with their clients but also with their peers. Find out what their business relationships have been like. Ask other investors for a referral or ask your banker, accountant and network groups.
Also, verify what their cost is so you are paying for the level of service that you need. Donald Trump's attorney may be the best in the country but is doesn't make sense to pay his fee for a $250,000 transaction.
When you are in a situation where you are considering using a commercial real estate attorney, always weigh the risks versus the rewards and make sure that you always use a commercial real estate attorney.