Purchasing a Business that Includes Real Estate
By John D. Belkin, Garfield & Hecht, P.C.
When buying a business, the transaction typically includes real estate in some form. Examples of the real estate could be a building, a parking lot for customers or a lease. Typically, the real estate is not the basis of the transaction, but rather of consequence because of how the real estate will be used in the business.
Real estate considerations should be brought to bear early in the transaction process. This will allow the purchaser to more effectively address potential costs of any due diligence discoveries and mitigate areas of concern. Examples of areas of concern are underground storage tanks in the purchase of a gas station, environmental contamination from a restaurant, dry cleaning business or auto repair shop or mold contamination from water damage or leaks.
A business is only as good as what applicable zoning will allow the property to be used for. In addition to confirming that the business is an allowed use, the inquiry by legal counsel should go further if there is a plan to expand the business to include other uses. Any purchaser should be informed if there is a pending re-zoning or down-zoning or a pending tax protest. If the business holds a liquor license, the transfer of the license to the purchaser will be material condition to be satisfied.
Where the business operates under a lease, complete lease files should be obtained and reviewed and key commercial terms such as assignment restrictions, permitted hours and whether directly competing businesses are allowed or prohibited under the lease should be discussed with the client. Consents, estoppels, non-disturbance agreements and other third party agreements may be required.
If there will be a lender involved in the purchase, the lender’s requirements will need to be satisfied ahead of any closing and it is likely that any purchaser must be able to provide free and clear collateral to secure the borrowings. Does the purchase include any fixtures or equipment? Is the equipment leased or owned by the seller? Is any equipment being removed by the seller? Will the removal cause any damage to the real estate?
It is not possible in this short article to summarize everything that may be relevant as to the real estate related issues that may arise in the purchase of a business.
Garfield & Hecht, P.C., has skilled business and real estate attorneys at various locations to assist with business purchases.
In Glenwood Springs or Rifle or other locations on the western slope please contact David McConaughy (970-925-1936, ext. 810 ), Mary Elizabeth Geiger (970-925-1936, ext. 813, ) or Haley Carmer (970-925-1936, ext. 815, ).