Commercial Real Estate Law

1. Does it make any difference how I take title to commercial real property?

2. What is an estoppel certificate and why is this necessary in the purchase of commercial real property?

3. What is a 1031 exchange?  

1. I advise my clients to take title to commercial real property in a limitation liability entity. I would use a limited liability company, a limited partnership, or a corporation, or some other means of protecting liability. Even an irrevocable trust can be considered. You don’t want the exposure that your insurance won’t cover when you buy commercial real property. And commercial real property creates situations where there could be large lawsuits or large losses and that insurance is just not sufficient or cost effective to maintain. So I always advise my clients to strongly consider the limited liability entity.

2. When you purchase commercial real property that has a lease on it, then a Estoppel certificate is very necessary. First of all, you need to know that the seller of the property is in conformity with the terms of the existing lease with his tenant. If he’s not in conformity with the tenant, all sorts of legal problems can ensue. So a lender going’s to require it, a buyer’s going to want to require it. That way, you know that there will not be any problems post-closing with the tenant. And Estoppel certificate may not apply where there’s no leasing of the property involved and it’s just a building that has no tenants and in that case, an Estoppel certificate would not apply.

3. A 1031 is a tax deferred exchange where if you own commercial real property and you sell it for a profit, you can defer the gain to another day. For example, if you own property that you paid $500,000 for and you’re selling it for a million, you would have a $500,000 profit. You know of a property that you want buy for a million and a half. You don’t want to pay taxes and lose the ability to transfer the equity in your property to the new property. That is the purpose of a 1031 exchange. All arrangements need to be made through a qualified intermediary such as myself prior to the closing though. If not, it’s too late to effect a 1031 exchange.