10 Things to Watch Out For While Transacting in Commercial Real Estate
Due Diligence: All the titles issues must be settled before the transaction process begins. Buyers must be aware of the matters (preliminary title report) of the title of their property, which must be obtained before taking the decision of buying a commercial property.
Property Valuation: The property valuation is imperative for both parties involved when it comes to commercial property investment. It is suggested to refer to valuation teams at research firms with impeccable record of completion of valuations. This is usually done to know the real value of the property.
Land Survey: In India, a land survey by the local jurisdiction/authorities will provide an assurance that the title information includes the details of the property being sold. The seller must also possess the topographic details, construction blueprints, legal description, as-built drawings and engineering designs of the property before setting out to sell the property.
Environmental concerns: While making property buying decision, it is an absolute must to check whether the said property has all the necessary environmental clearances. The property must have Environmental Clearance (EC) with an Environmental Impact Assessment (EIA) certificate/ report, which implies that the said property is in compliance with the various rules and regulations. An EIA is basically an assessment of the potential impact a particular project or activity, may have on both the natural and social environment.
Finance: Financial verification must be undertaken to ensure that mot only the buyer has all the required capital to complete the transaction, but also that the too has all detailed paperwork of the property required by the buyer.
Insurance: It is advisable for buyers to buy property with insurance. A seller must give the insurance details tied to the property (in escrow) in time.
Loans: Commercial real estate loans can be used to buy property for your business to operate out of and to buy income producing commercial properties. With several finance options available, the eligibility for a type of financing will depend on which category the commercial real estate deal falls into: Owner Occupied or Investment / Income Producing. Another method of obtaining finance from bank or other financial institute or lending institutes are Lease Rent Discount (LRDs). LRD consideration is between the borrower who owns the premises, the tenant who has rented the said premises or taken on lease and the bank or financial institute or Corporate. The rent is considered as fixed income over a stipulated time i.e. Lease or rent period or tenure. The agreement is between the borrower and lender and the major term of repayment is the rent which is directly deposited with the lender and not with the borrower. The Borrower is sanctioned a loan based upon the rent to be collected over the period of lease.
Lease and Agreements: In case of lease, there must be a comprehensive copy of a written lease and not oral lease, occupancy certificates, along with certified roll rent showing the current and previous rents. The seller must also possess all permits, occupancy certificates, guaranties, warranties and other such special assessments and government notices.
Commercial Real Estate acquisition is a complex and comprehensive process. All the records and finances must be in place to initiate any transaction. For the buyer, the chief task is to explore all aspects such as seller’s tax returns, loans, compliance details, assessments and evaluation of legal documents, countries’ rules and regulations, litigation history, service contracts, analyse and inspect the property, awareness of zonal rules and property codes etc. before rushing in a transaction.
Registration: Post buying a property, the buyer must do the pre-requisite procedure of registering the property with the local jurisdiction at the registrar office