Commercial property, or commercial real estate, is real property that is owned and used for business purposes. Others define it as real property that is intended to generate a profit, either from rental income or capital gain, which would be its increase in value over time, or both.
Of course, commercial property can also include multi-family residential property, i.e. apartment buildings. In many states, residential property with more than a certain number of units qualifies as commercial property for borrowing and tax purposes. Generally, the owner of an apartment building or complex owns it with the intent to realize a profit from rental income and capital gain. Residential leasing is a business that comes with its own special set of legal issues related to leasing units to residential tenants, such as eviction law, local rent control regulation and the like..
Therefore, commercial property laws are likely to be different from those that apply to residential property in a number of ways. Most states, counties and cities have specific laws that apply only to commercial property and they treat it differently in some ways from residential property. Among the important laws for commercial property are zoning laws, which are usually established by county or city governments.
Zoning laws recognize that commercial property may be associated with different uses than residential property. Some uses may be allowed only in residential areas, while some others are only allowed in areas specifically zoned for commercial uses and various kinds of business activities.
What Are Some Commercial Property Legal Issues?
Distinct legal issues can be associated with the ownership and leasing of commercial property. Some of the issues that come up under commercial property rules can involve the following:
- Zoning and Land Use: As mentioned above, a business can typically conduct its business activities only in areas that are zoned by the local zoning authority for commercial uses on commercial property. Environmental and zoning issues can arise in connection with almost every commercial property. The specifics depend on the location, the type of business and local zoning and land use regulations.
- Practically all local governments create separately zoned areas for residential, business, and industrial properties. If the use or proposed use of an owner or lessee does not conform to the current zoning, there can be issues with the local zoning authority. It may be possible to win a variance for a use that does not conform with local zoning, or it might not. This can, in turn, lead to issues with a commercial lease;
- Commercial Leasing Issues: There are several different types of commercial leases in widespread use. Each can have its advantages and disadvantages for both the owners of commercial properties and their lessees. As with residential property leasing, commercial leasing can give rise to various legal issues.
- For example, there can be an issue as to material defects in a commercial structure and whether the lessor has to disclose these to a lessee or a seller to a buyer. There can be issues regarding encumbrances and whether there are easements, deed restrictions or liens which limit how the property can be used. There can be issues as to who has the duty to repair a leased commercial property, the landlord or the tenant.
- ADA Compliance: In the U.S. all businesses open to the public or with more than 15 employees must make their facilities accessible to disabled people. So anyone purchasing or leasing commercial real property who fits the criteria for compliance with the American with Disabilities Act (ADA) wants to ensure that the property is compliant or know what it will take to make it compliant and who is going to pay for any necessary modification.
- If the property is not compliant, is the seller going to make it compliant before selling or will the responsibility fall on the buyer? If commercial property is leased, who is responsible for ADA compliance, the lessor or the lessee? These questions need to be answered before a transaction is completed;
- Property taxes: Commercial property taxes, like residential property taxes, are based on the assessed value of the property. So the property taxes on commercial property are generally higher, because commercial properties are usually worth more than residential properties. They are worth more, because they generate income. Thus, commercial property taxes are likely to be higher than residential property taxes.;
- Insurance: Commercial property and business insurance disputes can be a source of legal issues for many businesses. Of course, issues with homeowner’s insurance can plague residential real property owners as well. But, businesses usually need more than one type of insurance, so there is more complexity and cost to business insurance;
- Ownership Disputes: As with any type of property, ownership of commercial property can sometimes lead to title, ownership, and leasing disputes;
- Boundary Disputes: Commercial property owners can have disputes with the owners of neighboring properties over the physical boundaries of the property. Issues of this type might be more common in rural settings than in urban ones, but they can arise in connection with commercial property anywhere.
In addition, the sale and purchase of the commercial property can involve a variety of legal issues. Such disputes can involve breaches of a sales contract, zoning and land use issues, and issues with disclosures of defects and implied warranties that may apply to a sales transaction.
What If I Have a Commercial Property Legal Issue?
The nature of the dispute may dictate the process that can be used to resolve it. For example, if a business has a dispute about zoning, a business owner might have to deal with the local zoning authority to resolve the issue. If a dispute involves the parties to a commercial lease agreement, they would turn to the standard processes available for the resolution of civil disputes.
Some dispute resolution methods are as follows:
- Negotiation: The parties to a dispute can always negotiate an acceptable resolution between or among themselves. Or, if they find they are unable to achieve that, they might turn to lawyers to help negotiate a resolution for them;
- Mediation: Mediation is a process in which the parties to a dispute meet with a neutral third-party who may be knowledgeable about the law that underlies the dispute. A mediator listens and tries to help the parties come to a mutually acceptable resolution of their problem and then document it for future reference;
- Arbitration: In an arbitration, a private person who is sometimes agreed upon by the parties, called the “arbitrator,” acts much like a judge in a civil trial. The arbitrator hears presentations by the parties and then makes a decision about their dispute. The decision of an arbitrator can be binding on the parties, which means they can even go to court to enforce the arbitration decision. Or, if the parties prefer, it might be non-binding.
- It is increasingly common for contracts of various kinds to include arbitration provisions which require the parties to the contract to use arbitration to resolve disputes and give up their right to turn to the civil courts and trial by jury. There are, of course, advantages and disadvantages to arbitration and a person should think carefully before giving up their right to file a lawsuit to resolve a dispute.
- Civil Lawsuits: Of course, in a significant dispute, a party to a commercial real property dispute can turn to the civil courts and file a lawsuit to resolve a dispute. Civil lawsuits can ultimately lead to a trial in which a judge or a jury ultimately decides who should prevail in the dispute.
- Most civil lawsuits are settled before trial as the parties go through the process of discovery and develop an accurate understanding of the law and the facts of the case. In addition, lawyers are usually involved and they advise their clients about the best course of action, as well as who is in the stronger position.
- Disputes may involve regulations that are enforced by government agencies and this may mean that a claim has to be lodged with the government agency first, before a party or parties can turn to other methods of resolving their differences. For example, disputes about taxes would need to be addressed first to the taxing authority who imposes the tax and collects it. For this reason, if one is involved in a commercial real estate dispute, it can be a good idea to consult an experienced real property lawyer.
Do I Need a Lawyer for Help with Commercial Property Legal Issues?
Commercial property is a very specific subset of real estate law. You may wish to hire a commercial property lawyer if you need help understanding the laws that may apply to commercial property in your area. Your attorney can assist you with any legal issues that need clarification. Also, your lawyer can represent you in negotiations, which can help you find a resolution without engaging in expensive legal action.
If that is not possible, your lawyer should be able to assist with other methods of dispute resolution. Or, if a lawsuit becomes necessary, your lawyer can represent you in court.You may be able to recover money damages if you have suffered financial losses due to a property dispute. If the best resolution involves revisions to a commercial lease or other accommodations, that may be possible as well.