Property FAQ’s

Helping You Grow: Businesses

1. What are my options if I am interested in buying a building, but my intended use is not permitted under the local zoning ordinance?

You may be able to get the zoning changed or perhaps the local zoning board has authority to grant you a variance or exception so that you can use the building the way you would like to.

One way to proceed is to sign a sales contract, but include a clause that makes your obligation to close contingent on your being able to change the zoning or getting permission from the local zoning people for your intended use. Another possibility is to get an option from the owner, and then investigate the possibility of a getting the zoning the way you want it. If you get what you want during the option period, you can exercise your option and buy the property.

2. What does the term “build-out” mean?

Every business has its own jargon and the commercial real estate business is no exception. Many office and retail buildings start out with tenant spaces consisting of little more than four walls and a door. The idea is that the spaces will be finished to meet the specific needs of each tenant.

The process of finishing this raw space is known as the “build-out.” There can be extensive negotiations between the building owner (landlord) and the tenant over:

1. What improvements will be made?
2. Who will pay for these improvements?
3. Who will be in charge of getting the work done?
4. What will the tenant be permitted (or required) to remove at the end of the lease?

3. What are fixtures?

They are the parts of the building that are permanently in place and which cannot be removed without damage to the building. The plumbing system is an example. Usually, fixtures are included when you buy a building.

On the other hand, items that are not attached or are easily removed are considered to be personal property. Office equipment is an example. Usually, personal property is not included when you buy a building, unless specifically listed in the sales contract.

4. What are “pro-rations”?

Often there are taxes and utility bills that cover periods both before and after the closing. These expenses need to be allocated between buyer and seller. In the real estate industry, these allocations are called “pro-rations.”

To avoid problems at closing over the details of these pro-rations, you should describe the pro-rations in the sales contract.

5. What is a “deed of trust”?

It is very similar to a mortgage. With a mortgage, you continue to hold full legal title to the property you have bought but you give the lender a lien on the property. If you do not make your mortgage payments, the lender can foreclose on the property.

In some states, a deed of trust is used instead of a mortgage. With a deed of trust, you give the lender a deed to the property but the lender can only use or sell the property if you do not meet the loan terms.

As a practical matter, there is very little difference between these two methods of giving the lender a security interest in the property.

6. What is title insurance and why do I need it?

Title insurance guarantees that you are receiving full legal ownership of the commercial property that you are buying. If a lien later shows up or it turns out some other property owner has the right to use your parking lot, you can sue the title insurance company to recover any loss that you have suffered.

Having a title insurance policy takes much of the legal risk out of buying a building.