Buying a Commercial Property? Here are the Legal Considerations You Need to Know

Investing in property is something of a cliché for budding business owners - but for good reason. Getting a good piece of real estate is, consistently, one of the smarter investments one can make. Depreciation rates are minimal, and your asset may even grow in value. Furthermore, it’s cheaper, in the long run, to buy compared to renting a property. And finally, if you ever change your mind, you can always sell and recoup the equity you've built up in your property.

Whether you want to use your commercial property for your own private business or rent it out, there are some legal considerations and actions you need to take into account before you buy.

Whatever you decide, you need to take all the local and federal laws into account. If you don’t, you may, at best, receive a fee or penalty. At worst, you could face serious legal litigation.

Loan or Cash?

If you can afford it, getting a property by cash is, of course, the best option. No interest, no added hassle, no bank fees. You buy it, you got it, end of story. It's a simple point not directly connected to the actual buying of the property, but one we nonetheless wanted to mention. 

However, most of you will probably need to get a loan, at least to cover a portion of the price. Now, of course, this depends on the place you’re buying. If you're looking to buy in New York, for example, then some pieces of real estate can set you back a whopping ten thousand dollars per square foot!

In short, the more prepared and knowledgeable about a property and your desired area you are, the more likely you will get a better deal on a loan. And getting a real estate agent can also be a huge help.

Zoning Laws

The specifics of your property will depend on the type of business you are in. This is especially important if you actually want to build something on a piece of land, not just buy a completed piece of property. For example, let’s say you want to buy an empty warehouse and convert it into a small, fabric manufacturing plant. You need to see if the local laws and regulations will actually allow you to open a place like that there. Perhaps the machinery will be too loud or will pollute the place too much. Or maybe they won’t allow heavy machinery at all.

Whatever the issue may be, these, like all these restrictions and laws, depend on where you're setting up. For example, if you operate in Germany, but want to branch out to Australia and intend to buy commercial property in Sydney, the laws will most likely be different. You need to be thorough, and to really do your homework.

Ownership and restrictions

While the property may be yours, is the whole area covered by an owner’s corporation? Or perhaps part of a neighborhood organization? If so, you need to check and see what regulations and fees they require. Shared ownership may also provide you with added services.

What about Goods and Services tax? How much are the rates, what can they give you? Do these vary and change according to the line of business you are in? If so, you need to check, in order to avoid any nasty surprises. 

Extra and Miscellaneous Considerations

Are there any other restrictions or easements? For example, are there any covenants? Did you check the measurements of the property, and compare it to the actual plans and schemas of the property? All this should be in the contract of sale, but doing your own measurements is always a good idea.

So, double check the figures with your own experts. This means getting the land measured, or getting the existing infrastructure checked again. Prepare a budget for this as well - a land surveyor in New York can set you back by at least a thousand dollars.

Of course, another option is to use a coworking place as your commercial residence. Ask around and see how much this would cost. These are a great option for both short term and long term business dealings. 

Conclusion

Buying commercial property is a smart business move. But the bureaucracy of a sale can make such a move difficult. That’s why you need to have your T's crossed and your I’s dotted, otherwise, you're going to end up with annoying fees and a lot of red tapes.

 Summary

  • Decide whether you’re using a loan, or paying up right now in cash
  • Check your local and federal zoning laws
  • Are there any added taxes, fees or considerations tied to this property?
  • Is working at a co-working space an option?
  • And remember:
    • Check all laws
    • Be thorough
    • Don’t let your ego get in the way – ask for advice!
    • Be thorough – paperwork done poorly now will come to bite you later
    • Choose a place within your means 

About the Author

Aside from primary area of interest and expertise in business consulting, Ian Pearson could be tagged also as a passionate sports fan, nature and photography enthusiast, always trying to keep up to date with tech innovations and development.