Even the most seasoned land investors and developers can be caught unawares regarding laws that are not readily apparent which affect commercial properties. For that reason, it is important to have the counsel of a qualified attorney in such transactions. Some common pitfalls include:
- Be Sure Your Proposed Use is Permitted in the Zone
If you are not careful, you may purchase a building to operate your business, only to be closed down by the municipality after closing. Be certain that your contract has sufficient contingencies to assure that you can engage in your proposed use, and conduct thorough due diligence on this issue. You should not solely rely on the representations of the seller or the brokers, nor should you solely rely on what use currently exists. This is especially true if you intend to buy a property where there is a pre-existing non-conforming use (i.e. a "grandfathered" use). Talk to your attorney about this issue early in the transaction, when you are negotiating the contract.
- Be Sensitive to the Property's Past in Conducting Due Diligence
Many commercial transactions involve a standard "45-day Due Diligence Contingency" which make reference to a "Phase I" environmental investigation. However, if you are purchasing an environmentally sensitive tract, such as a former gas station, farm, apple orchard or auto repair facility, you and your attorney should discuss the advisability of conducting more thorough due diligence.
- Budget Enough Time and Money for Approvals
Obtaining approvals to develop land in New Jersey can be costly and time-consuming, and many projects do not come to fruition because the developer has not carefully budgeted time and money.
If you are developing or altering the tract you are purchasing, you should determine what will be involved before you are obligated to close title. The costs of obtaining approvals usually will involve more than legal and engineering fees - there may also be application fees, escrows, performance bonds, planning fees, architectural fees, and a myriad of other costs depending on the project. Additionally, the approval process often does not end with a favorable resolution of the municipal planning board or ZBOA. Many approvals are subject to the procurement of approvals from "outside agencies", such as the Department of Transportation, Department of Environmental Protection, County Planning Boards, Soil Conservation Districts, and Utility Authorities.
Early in the process, you should seek the assistance of both a qualified attorney and engineer in providing estimates for the costs and time needed for your project's approvals. While uncertainties associated with land development prevent any guarantees of cost and time, conferring with the attorney and engineer will allow you to make informed decisions in planning the project and help reduce the associated risks.
- Beware of Inheriting a Bad Tenant
If you are purchasing a commercial property subject to tenancies, your obligation to close under the contract should be subject to a thorough review of the lease agreements and rental histories. Commercial tenancies can impact the future viability of your project in unexpected ways - including prohibiting your ability to obtain financing or selling the land according to your own terms.
- Confer with The Lender Throughout the Transaction
Most commercial transactions involve institutional financing. If you become aware of a condition affecting the property, be it an environmental defect, zoning condition, leasing issue, or title defect, you should confer with your attorney about disclosing the situation to the lender as soon as possible. Most commercial loan commitments contain comprehensive conditions regarding the condition of the property. It is not enough that you are satisfied with the transaction, your lender must be as well. It is often better to resolve issues pertaining to the property with the lender as they become apparent, rather than running the risk of financing fall through shortly before closing, when your liabilities are likely increased.
THE PURPOSE OF THE ABOVE IS TO PROVIDE GENERAL INFORMATION. IT DOES NOT CONSTITUTE LEGAL ADVICE, AND IT DOES NOT ESTABLISH AN ATTORNEY/CLIENT RELATIONSHIP. YOU SHOULD RELY ON IT FOR GENERAL INFORMATIONAL PURPOSES ONLY. YOU SHOULD SEEK THE ASSISTANCE OF A QUALIFIED ATTORNEY WITH QUESTIONS THAT PARTICULARLY AFFECT YOU.