Commercial real estate (CRE) transactions are not meant to be long, tedious processes that discourage buyers from moving forward. When structured intentionally with various milestones, such as performing property due diligence and signing a rental lease agreement form, they can be a beneficial procedure that provides clarity and understanding for both parties. Therefore, before entering into a CRE transaction, it is crucial that both buyers and sellers are informed of the process awaiting them.
The Genau Group provides premier tenant representation, lease breakdown, and general commercial real estate services to prospective tenants in the D.C., Maryland, and Virginia area. Our team of certified, experienced real estate professionals will walk you through each step of the commercial real estate buying or selling process with ease and one goal in mind: to protect both your peace of mind and your investment. Call The Genau Group at (202) 735-5382 to discuss your commercial real estate goals today.
Below, we break down four milestones of a commercial real estate agreement:
1. Determine a Letter of Intent (LOI)
After the property is determined and both parties agree to move forward, a CRE attorney performs the first step in a CRE transaction: writing and delivering a letter of intent on behalf of the buyer. An LOI is a non-binding summary of proposed terms, such as rent, term length, and key conditions, that signify the beginning of a formal negotiation period.
While it is only the first step in the process, it is important for the letter of intent to be as specific as possible. For example, a tenant who agrees to a base rent that is much higher than they anticipate later on in the process risks miscommunication or roadblocks during the due diligence process, potentially upending the entire deal. Tenants should be forthright with both their attorneys and their transaction partners about their wants and needs in order for the transaction to get off the ground.
2. Identify Third Parties
Commercial real estate transactions often take multiple parties to be executed efficiently, from lawyers and property managers (PM) to contractors and architects. Each third party plays a different, yet crucial role from one another: architects and contractors will discuss any buildout possibilities and prospective costs, attorneys will review the leasing terms, and property managers will discuss operational specifics such as access hours and parking possibilities.
It is of the utmost importance to incorporate these third parties into the transaction early on so as to prevent impediments later on in the process. Attorneys, contractors, and PMs are subject matters in their respective fields and will provide clear, unbiased information to both parties to help keep the process moving smoothly.
3. Perform Due Diligence
Primarily, due diligence allows the new tenant to inspect the property for any wrongdoing or inconsistencies with the lease agreement before moving to the final stage. At this stage, you will have to review the zoning confirmation along with the certificate of occupancy, as well as ensure there are no physical or environmental defects specific to the space. Issues that occur or arise at this stage are much easier to resolve before the final agreement is signed.
This is the final stage of the process before moving forward with the lease agreement, so it’s crucial that the space is up to both you and your contractor’s standards. For example, if a restaurant tenant fails to confirm grease trap capacity, or a medical tenant doesn’t quite understand the space’s ADA compliance standards, both will end up facing expensive retrofitting processes that could have been prevented. Due diligence may be the longest stage of the process, but it is perhaps the most important for protecting the tenant’s investment.
4. Review & Sign Lease Agreement
The lease agreement is the culmination of the entire CRE transaction process. Every point that was negotiated throughout this process – be it a longer rent period, renewal options, tenant improvement allowances – should be reflected imminently in the document. Before either party signs, a thorough, patient review is essential for ensuring all options match what was agreed upon and progressed through each stage.
Execution marks the final stage, but there are a few minor details that will follow. Coordinating a safe and efficient move-in, establishing proper communication with the property manager, and any final walkthroughs may be coordinated in the days or weeks following each signature. At this point, though, each detail will have been established, and a commercial property should be awaiting its new tenant.
The Genau Group Provides CRE Tenant Representation to Help You Sign a Rental Lease Agreement Form
CRE transactions do not need to be as confusing as they are prolonged. The Genau Group’s team of professionals will find a commercial space fit for your business before accompanying you through every step of the transaction process, including signing the final rental lease agreement form. Call our team at (202) 735-5382 to discuss your commercial real estate goals today.