What are contingencies for commercial real estate?

On Behalf of | Aug 10, 2021 | Real Estate Law | 0 comments

Buying a piece of property to run like a business is a critical investment. Some prospective buyers discover problems with a property during the sales process. If they had known about these issues beforehand, they may have not committed to the purchase in the first place. This is where a real estate contingency may be of benefit.

Contingencies in real estate contracts allow the prospective buyer to walk away from a property purchase without incurring penalties if the contingency is not satisfied. Terminating a contract because a contingency was not satisfied should result in the prospective buyer getting the earnest money deposit returned. Chron explains the different contingencies available in commercial real estate contracts.

Financial records contingency

As a buyer, you may be seeking out an existing commercial operation with a positive cash flow. Including a financial records contingency in your contract allows you to take a look at the income and expense records of the property. You may use vendor records and operating statements to figure out whether the property is truly turning a profit.

Physical inspection contingency

You should know whether a building and the land it sits on are both suitable and safe. With a physical inspection contingency, you have the chance to examine the condition of the land and the building. You can check for safety, the quality of the building’s amenities, see what needs improvement and whether you can afford it, and also verify the square footage of the property.

Zoning contingency

You should be sure that you can do as you wish with your new commercial property. It is possible that zoning laws will forbid your desired use of the property. Restrictions may include not allowing certain renovations or new construction. Even if you buy an existing building, you might need to install more parking spaces for your desired use.

Financing contingency

You probably feel confident that you can secure the financing to fund the property purchase. Still, some buyers learn that a loan that appeared to be in hand suddenly fell through. If you have a financing contingency, you do not have to take the chance of your lender not approving your loan. If properly written into the purchase contract, a financing contingency may even let you leave a purchase if you get a loan but it is on less favorable terms than stated in the contract.