Common Risks in Real Estate Business Deals


Real estate property deals come with a fair share of risks. When buying a family home, you can get a good understanding and general sense of what will go on. In a commercial real estate deal, what goes on in the business property depends on the nature of the business and is subject to the demands of liens, zoning, and titles. Commercial real estate transactions do not give you the same consumer protections as you would receive when purchasing a residence.

Here are some of the potential problems involved in a real estate deal:

  • Hazardous Waste:
    Hazardous waste and environmental contamination is a great concern for a business property, because the current property owner is fully responsible for cleaning up a contaminated property, even if they were not responsible for the contamination. Clean up operations can cost up to millions of dollars.

  • Market Fluctuations:
    Changes in property value affects tenancy rates and rent rates. This could impede some business from moving locations when their property value is too low to sell. Leasing can provide flexibility in this situation, because then the business does not have to worry about selling the property.

  • Title Defects:
    Ownership of real estate property is conveyed by a deed—this helps in tracking how property has exchanged hands. However, transactions, such as partial transfers and sales in property, with a title in poor condition could result in someone having prior claim to your purchased property.

  • Lender Requirements:
    Borrowing money can create a risk in your deal. Failure to comply with the security terms of a loan can give lenders the ability to collect and eventually foreclose on you. These securities, often in the form of mortgages and deeds of trust, can also prohibit you from taking future loans or force you to pay lender legal fees and costs.

  • Mechanics Liens:
    Contractors and laborers can ensure payment for the work they do on business property with mechanics liens. This includes furnishing materials, repairs, and building. These liens are often on strict timelines, and failing to comply with the liens can result in a foreclosure on your business property.

  • Zoning & Land Use:
    Zoning laws can limit the use of your business property, because they determine availabilities of practice on your property. These laws are subject to change by government agencies as well as your neighbors, so it is important to know the zoning laws of your own property as well as nearby/adjacent properties.

When considering a real estate business deal, it is important to know the risks involved and having proper counseling to help ensure that you are protected to the greatest extent. Businesses often fail because the owners were not well-informed on the risks they would be confronting.