By Lawrence M. Centanni, Esq.
Whether you’re looking to purchase digs for your new retail shop or have plans to build a manufacturing plant, there are several considerations buyers need to be aware of before beginning their search and signing any paperwork for commercial property in New Jersey.
Below are a few items you’ll need to review and tackle to make the best financial decision for your business or organization while preparing for success.
The first thing you will need to do is consider the use of the property you intend to buy. Check with your local municipality and county for what zoning will be required for your business. Look for commercial property that has the right zoning your business will require.
Zoning laws and building codes may impact what can be done to the exterior or even the interior of a structure. Check what zoning laws may impact changes or upgrades that can be made on the property. Adequate parking must also be considered for customers and staff per local code.
When you begin looking for commercial real estate, be sure your REALTOR is searching for property zoned for your specific needs. The bottom line is simple: The property you’re planning to purchase needs to be zoned for its intended use BEFORE you buy!
Look at the Title
Secure the existing title policy information from the seller. You can request a title search commissioned by a realtor or another third party. Look through the title information including the date the title was issued, encumbrances, and any restrictions of record. Determine if any endorsements are required for the property title.
When it comes to the purchase of the property, work with your realtor and title company to determine what type of deed should be received from the seller. In most cases, a bargain and sale deed with covenants against the grantor’s acts is almost always preferred.
Property and Building Inspections
Before making a decision to purchase a commercial property, secure documents regarding the property and any buildings on it. These may include architectural plans, square footage certifications, renderings, and former inspection reports. Pay close attention to these documents for any issues from roof repairs to problems with mechanical systems.
You’ll also want to have some current inspections conducted. If you’re interested in a property, be sure to hire a reputable commercial property inspector to check it out. They will need to focus on the current condition of the walls, roof, HVAC, and fire suppression systems among other items for each building or structure on the property.
You can also check with your local municipality to determine if there were any past issues with passing building, fire, and safety inspections or code violations that have not yet been remediated.
Survey and Appraisal
You’ll want to order a survey of the property or obtain any recent surveys commissioned by the current or past property owners. An updated survey will most likely be required unless one was recently conducted. Review the survey results to identify any issues with encroachment the title company may have failed to identify. Note the location of any easements as well.
Secure an existing appraisal of the property and its value. You will need this before your mortgage company will provide funding. When you find a commercial property you’re serious about, hire an independent appraisal firm to provide an estimate of its fair market value.
Permits and Approvals
Once you purchase your property, you’ll need to ensure that all permits and approvals are taken care of. This may mean working with your builder in conjunction with the local city, county, and state. In doing so, you’ll need to determine what permits your business will require such as a liquor license if you’re planning to serve alcohol, for example.
Such permits may be required before you can begin construction, renovations, or approval of the site plan. In working with your local planning and development departments, they will be able to assist you with achieving the proper permits and approvals as well as provide you with an estimated timeline for the completion of this process.
As part of this process, you’ll also want to secure from the seller and the local government planning departments overseeing the property for historical, current, or pending applications and documentation of permits, licenses, and approvals for the property. This will assist you in determining the current status of the property and the need for further discussions with municipal officials. Looking into past and current applications and permits can also assist you in determining whether you need a new or continued certificate of occupancy when you purchase the property.
Finally, you’ll need to ensure the property is compliant with the Americans with Disabilities Act (ADA). This may mean putting in ramps, elevators, handicapped parking, and more to ensure that your property and any buildings are fully ADA-compliant.
Before you purchase a commercial property, you’ll want to ask the seller about any existing environmental reports including local soil and water tests. You’ll also want to ask about other environmental reports identifying the presence (or lack thereof) of lead paint, mold, radon, or asbestos. Remediation of such contaminates can be costly and time-consuming, which may impact your decision about purchasing the property.
Such testing and resulting reports should have been conducted by a Phase I environmental inspection firm. If you reach out to the firm, they will be able to tell you whether or not an updated report is needed. You may also ask them and the seller about the presence of any past or present underground fuel tanks. You’ll also want to inquire as to any history of environmental hazards such as oil spills, chromium, Polychlorinated Biphenyls (PCBs), etc., as well as how those issues were satisfactorily remediated.
History of Operations
Another item you’ll need to consider before buying a commercial property is the operational costs affiliated with any buildings or structures. Request the last three years of financial statements for the property. This should include real estate tax bills, utility bills, and aged receivables.
You’ll also want to review capital expenditures for the property over the last few years such as repairs or improvements made to buildings on the property. You’ll also want to review the current operating and capital expense budgets to get an idea of what it will cost you to continue operations.
Ask for insurance information for the property as well. You’ll want to know what policy the current owner has in place. If there are tenants on the premises, you will also need to ask what policies are in effect pursuant to tenant leases.
Speaking of tenants, if there are any, you’ll want a copy of all leases and related documentation. Get a copy of the rent roll, the standard lease form, a list of all security deposits, and any options or rights of refusal that have been provided to the current tenants.
Request any letters of intent to lease or pending leases, a list of any commissions owed to brokers, and financial and credit information supplied by any tenants or guarantors.
Procure the schedule of any and all concessions or accommodations made to tenants. This could range from upgrades to rent reductions or even free rent. Get a list of each tenant’s pro rata share of the common area maintenance charges such as pools, laundry areas, parking, etc. This will help you determine costs for maintaining shared common areas.
Look for Claims
Examine the history of any litigation involving the property or prior disputes such as prior deals or property claims. This will help you to determine if there are any releases, claims, or settlements that must be completed prior to the purchase of the property.
You’ll also want to find out the status of any pending foreclosure actions. Find out if the bank is willing to forebear further foreclosure proceedings pending the closing of the sale.
Other Items to Investigate
There are several other documents you’ll want to secure from the owner in addition to everything mentioned above. Start with notices regarding new or special tax assessments and any existing service contracts such as landscaping, garbage removal, security, etc. Ask about any existing liability insurance claims or pending hazards that need to be addressed.
Notices regarding the right of eminent domain by the State of New Jersey should also be requested as well. Obtain a list of furnishings, fixtures, and equipment that are included in the sale of the commercial property. Determine if there are currently any property taxes owed or any that are on appeal for the property. Also, check for any plans for road construction or other municipal projects in the area that could impact your business if it were to locate there.
New Jersey law requires the seller of any real estate property to disclose all known defects. This means the seller has an obligation to tell potential buyers about issues such as pest infestations. This includes potential off-site safety issues such as groundwater contamination caused by a commercial property. Not only is non-disclosure illegal, but it can impact a contract.
Get Legal Assistance
To ensure everything is properly signed, sealed, and delivered, seek legal assistance from an experienced commercial real estate attorney such as those at the Law Office of Lawrence M. Centanni.
A licensed commercial real estate attorney can assist you with determining what type of entity (think limited liability company, limited partnership, etc.) will take title to the property at closing. If an entity has not yet been formed, your attorney can assist you with forming the proper state authority needed. They can also assist you with obtaining an employer identification number (EIN) for the newly legal business entity and completing the required registrations with the state of New Jersey.
Finally, your commercial real estate attorney can assist you with preparing the governance agreement and other related organizational documents such as bylaws as well as negotiating on your behalf. They will also help you with preparing appropriate resolutions for contract documentation such as the agreement of sale, closing, take title, and fresh lease agreements with tenants.
This blog is a very basic guide to considerations prior to purchasing a commercial property in New Jersey. For further information or assistance, please contact the Law Office of Lawrence M. Centanni at (908) 351-0028.