Unlike residential properties that can be handled without the involvement of a real estate professional (a real estate agent), commercial real estate transactions require a higher level of complexity and as a result, real estate professionals handle almost all commercial real estate transactions. In fact, the courts view individuals and business entities that partake in commercial real estate as “sophisticated” parties. As such, they are presume to have access to information and representation by counsel which means that they would be penny wise and pound foolish not to work with an experienced commercial real estate professional which can drastically mitigate their exposure to risk.

To be clear, there are usually three situations that arise where an individual or company will want to acquire a commercial property.

They include:


Often times, when a person becomes certified in a certain profession or has been working in a particular profession for some time an feels confident in their skills, their entrepreneurial instincts may motivate them to start their own business. In these instances, an individual will need to find a brick and mortar space that can accommodate their business needs.


Another common scenario of when an individual decides to acquire commercial space is when they have been in business for some time and have either outgrown their current space or perhaps, they want to keep their current space but want to acquire additional space, or, they are moving from a home based business into commercial space.


There is no doubt that commercial properties can bear more earning potential as they often return a more stable cash flow than a residential investment. Commercial properties generally have an annual return off the purchase price between 6% and 12%, depending on location, as compared to a single-family home, which ranges between 1% and 4%, at best. As such, there are many investors who choose to focus on acquiring commercial properties.


Under each of these three scenarios, there are certain advantages and disadvantages to owning versus leasing a commercial space. Some of the advantages of purchasing a commercial property include low financing costs with current interest rates at historic lows, fixed overhead by knowing exactly what your mortgage payments will be for a fixed term, potential appreciation in value, ability to use the property as collateral for debt or equity financing, freedom from landlords, and subletting extra space for additional revenue. On the flip side, there are also a few disadvantages of buying a commercial property that must be acknowledged including, possible decline in property values,

Once you have decided to purchase or lease a property, tying up capital that could be used in the business, and headaches associated with being a landlord.

In determining whether leasing or purchasing is right for your needs, it can be helpful to work with a real estate agent. After all, since the seller/owner typically pays the agent’s commission, so there’s no reason not to work with an agent. Why should you go at it alone if you don’t have to?

However, if the seller refuses to provide a commission to a tenant/buyer’s agent, it is absolutely critical to have an attorney by your side through the transaction. First off, an attorney can make sure that specific provisions are included in the Purchase Agreement or Lease that meet your specific needs and protect your interests. Finally, it is easy to make a mistake or leave out crucial information when trying to prepare the agreement on your own, even if you use a pre-printed form. The failure to have all of the details spelled out in the agreement of sale often leads to serious problems which can cause delays and lead to extra expenses before the sale can be closed.

When you hire our firm, we can draft the Lease or Purchase Agreement, explain it to you, and make sure you know your obligations, when you must perform them, and what happens if you don’t. There are also many provisions that you need to be aware of, such as:

If Purchasing:

  • How much is the deposit or “earnest money”?
  • Who holds the earnest money deposit?
  • Under what situations will the buyer be entitled to receive the earnest money deposit back?
  • What other items, such as appliances, window treatments or lighting fixtures are included?
  • What inspections will be necessary, e.g. roof, wiring, plumbing, termites, etc.?
  • What if the seller/owner wants to back out?
  • Who pays the costs of any state or local deed transfer taxes or fees?
  • Who pays for title insurance?
  • When do the buyers take possession?
  • What happens if the property burns down the day before settlement?
  • Can the sellers place money in escrow for repairs that were not completed?


If Leasing:

  • What type of commercial lease is being offered?
  • How long will the lease run for?
  • Who is responsible for insurance?
  • What building services are included? Are repairs and maintenance included?
  • Are the terms of the commercial lease negotiable?
  • Doe the lease have ability to have a sublease or ability to be assigned?
  • Will I need a personal guarantee for the lease?
  • What amount, if any will be provided for costs of improvements?


The second actionable item you will need to take, much like when selling a home, you will need to make some aesthetic and/or structural improvements to the property. Commercial properties tend to have more wear than any other type of property because it they are heavily trafficked, more so than a home. So before you place the property on the market, you will want to make sure your property is cleaned up both on the inside and outside.

In determining what needs to be done in order to sell your property, it can be helpful to work with a real estate attorney and agent. When you hire our firm, we can help you not only with negotiating and drafting/reviewing the Purchase Agreement to make sure you are making the best decisions that are aligned with your investment goals. When you hire our firm, we can make sure that you both your legal and real estate interests are protected. 

To learn more about the hidden benefits of working with an agent who is also an attorney, please be sure to download our informative guide, “The Hidden Benefits Of Working With An Agent Who Is Also An Attorney.”


A 1031 Exchange refers to taking advantage of IRS Tax Code Section 1031. This tax code allows a real estate investor to swap their investment on one real property with another one. By doing so, the investor can defer taxes on the capital gains made during the initial real estate investment

Consider this example of how a 1031 exchange works:

  1. You invest in a commercial real estate property, Property A.
  2. Through your investment in Property A, you make $250,000 in net profit.
  3. If you were to pay a combined capital gains tax of 23% on your profit, you would owe the IRS $57,500. As a result, you would only make $192,500 true profit from your investment in Property A.
  4. However, if you decide to reinvest the entirety of your $250,000 profit into a new commercial real estate property, Property B, you do not have to pay the combined capital gains taxes from Property A.

Thanks to Section 1031, as long as you reinvest your investment profit in a “real property of like-kind“ then your trade of properties nullifies the gains or loses made from your initial investment.

You get a 1031 exchange when you want to grow your investment portfolio without enduring capital gains taxes. If you’re a real estate investor that wants to reinvest your profits into new business adventures, you should consider a 1031 exchange. Remember, you cannot take any profits from your initial investment – they need to be directly exchanged for new real property.

You must apply for a 1031 Exchange within 45 days of closing on your commercial real estate investment. During this 45 day window, you need to identify your replacement real property for the 1031 Exchange. An investor may choose to nominate up to three replacement properties for their 1031 Exchange approval. After the IRS approves the 1031 Exchange, the investor has 180 days to secure the purchase of their new real property.


Here’s what commercial real estate buyers using 1031 Exchanges need to know:

– Real Property of “Like Kind” is Ambiguous. 1031 exchanges are highly advantageous to a creative and resourceful real estate investor. You can sell a store front and then replace that investment property with an apartment complex. A single, expensive real property investment can be exchanged for several, cheaper real properties. Because the legal definition for like-kind real property is vague, the exchange possibilities are plentiful.

– Limitless Opportunity. There’s no limit on the amount of times an investor can utilize a 1031 Exchange to purchase real property. This means you could continuously roll over profits made from real estate investments into the purchase of new property and never pay taxes on your gains or loses!

– Delayed Exchanges Can Help You Find the Right Property. If you can’t find the right real estate to make an equitable exchange of real property, you can delay the exchange with a three-party “Starker” agreement. This is when a qualified third-party intermediary holds the cash profit made from the first investment until the investor can find a replacement property to invest in.

As you can see, the process can be complicated and there are a lot of details that need to be properly addressed. For a buyer on their own, the process can be confusing and frustrating and it is very possible key details may be overlooked. It is important for a buyer to work with a real estate attorney  and a trained commercial real estate agent to ensure the entire process goes smoothly and efficiently. When you hire our firm, we can make sure that you both your legal and real estate interests are protected.

To learn more about the hidden benefits of working with an agent who is also an attorney, please be sure to download our informative guide, “The Hidden Benefits Of Working With An Agent Who Is Also An Attorney.”


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