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Red flags to watch for in commercial property contracts

On Behalf of | Jul 8, 2023 | Real Estate Law

Commercial real estate is a popular way for many people to earn a good living. In fact, according to the National Association of Realtors, in 2022, the commercial real estate market saw a sales volume of over $1 trillion.

If you are hoping to dip your feet in the commercial real estate pool, it is important to pay careful attention to the details of any contract you consider signing. The smallest oversight can have significant implications.

Discrepancies in property description

Pay close attention to the property description in the contract. Any inaccuracies or vague descriptions can lead to misunderstandings or disputes. Ensure that the contract precisely and accurately describes the property, including its boundaries, square footage and any structures on it.

Terms and conditions that favor one party

A balanced contract does not excessively favor one party over the other. If you find that the terms and conditions of the contract heavily favor the other party, consider it a red flag. Be wary of clauses that hold you responsible for all repairs and maintenance or those that give the other party unlimited access to the property without proper notice.

Unclear financial terms

Financial terms, including the sale price, payment schedule, interest rates and fees, should be clearly outlined in the contract. If these terms are vague, missing or subject to change without notice, these are clear red flags. Make sure you fully understand all financial obligations before signing.

Absence of an exit strategy

Your commercial property contract should include clear provisions for terminating the agreement. Without an exit strategy, you could find yourself locked into a long-term commitment without an easy way out. Look for clear, fair termination clauses that outline the conditions under which both parties can end the agreement.

No provisions for dispute resolution

Despite best intentions, disputes can arise. A good contract includes provisions for resolving such disagreements. If your contract does not outline a process for dispute resolution, consider it a potential warning sign.

Lack of due diligence period

A due diligence period allows you to inspect the property, verify information and decide if you want to proceed with the purchase. If the contract does not allow for due diligence, or if the period is too short, tread carefully.

When entering a commercial real estate agreement in New Hampshire, the contract is the foundation of your relationship with the other party. It is critical to scrutinize each clause and provision, keeping an eye out for any red flags. A thorough understanding of the contract can help protect your interests and make your commercial real estate venture a success.