Potential Pitfalls in Arizona Commercial Real Estate Transactions

Arizona commercial real estate transactions can be lucrative, but they can encounter problems that can cause delays and costs. Commercial properties are subject to greater restrictions on use and may involve other special aspects that complicate purchase and sale. The best way to combat such problems is to anticipate them. Buyers and sellers must take proactive steps to protect their interests.

The following are the most common snags encountered in commercial real estate deals:

• Contractual disputes — These disputes can arise over terms such as purchase price, closing conditions, or performance obligations. The complexity of commercial real estate contracts makes it easy for parties to misunderstand or misinterpret key provisions. To mitigate these risks, buyers and sellers should collaborate on a clearly drafted contract that defines all terms explicitly. Poorly drafted contracts may fail to address important contingencies or exit strategies.
• Zoning and land use regulations — Buyers should conduct thorough due diligence as to local zoning ordinances and land use regulations before purchasing commercial property. It can be a disaster to discover later that zoning restrictions prevent the property from being used as intended. Land use regulations may restrict development or impose costly conditions on construction. These issues must be resolved preemptively.
• Environmental concerns — Buyers should conduct an environmental site assessment (ESA) to identify any existing environmental risks. Arizona law imposes strict responsibilities on property owners to remediate hazards. Contamination of soil or groundwater from hazardous substances can lead to expensive clean-up efforts or legal liabilities. It is better to spend money up front on an expert ESA than to deal with greater costs in the future.
• Title defects — Property liens, easements or boundary disputes can derail a commercial real estate transaction or create long-term legal problems. Title searches are critical to uncovering any encumbrances or defects that may affect the buyer’s ownership rights. A title insurance policy protects against future claims, but it’s essential to resolve any title issues before closing.
• Financing complications — Buyers securing financing may encounter difficulties in obtaining favorable financing terms or may be subject to stringent lender requirements. Financing contingencies in the purchase agreement should be carefully negotiated to protect the buyer’s interests in the event that financing falls through. 

Hiring an experienced transactional attorney early in the process is the best way to protect yourself against potential problems arising. Legal counsel can provide invaluable advice on contract negotiations, due diligence and regulatory compliance. 

At the Law Offices of Donald W. Hudspeth P.C. in Phoenix, we are skilled at protecting the rights or buyers and sellers of Arizona commercial property, guiding our clients through every stage of a transaction from contract to closing. To set up a consultation, call us at 866-696-2033 or contact us online.