Expediting the Contract Process

Expediting the Contract Process in Commercial Real Estate Transactions

A contract is an agreement, upon sufficient consideration, to do or not to do a particular thing.[1] real estate property is divided into two categories namely Commercial Real Estate (CRE) and Residential Real Estate (RRE). The difference between the aforenamed two is the purpose for which they are acquired. Commercial Real Estate is used for business purposes but Residential Real Estate is used for dwelling purposes. Commercial Real Estate is further divided into four categories depending on the use of the property that is; office space; industrial; multi-family rentals; and retail. [2]

Some of the advantages of owning Commercial Real Estate include; income potential, professional relationships with tenants, public eye on the property, limited hours of operation, more objective price evaluations, triple net leases and more flexibility in lease terms. The disadvantages include; time commitment, professional help required, bigger initial investment and more risks.[3]

The Commercial Real Estate transaction process is viewed as more complex and time consuming as compared to Residential Real Estate.  This process will include the pre-contract period, contract period and contract completion stage. The contract process in the Commercial Real Estate transactions involves drafting, perusals and amendments.

It is however important to note that processes involved in the pre-contractual stage influence the contractual stage. These include but are not limited to due diligence, client care, negotiations and financing. The chief aims of real estate due diligence are to thoroughly inspect the fundamentals of the property, seller, financing, and compliance obligations to reduce and mitigate financial uncertainties.[4]  Due diligence will also include acquiring relevant approvals. Client care will include legal advice offered to the client, the parties to the transaction may also engage in negotiations and the client may engage a financier to assist them in acquiring the property.

The contract process can be made faster through expediating the pre-contract process highlighted above. This will be done through among others the sue of technology since reducing the number of steps needed in the transaction will not be adequate. This is because property is a unique asset that needs to be significantly checked. In addition, the contract process itself may also be expediated through the use of technology. It is therefore vital that we adopt technology in this process not just for the time efficiency but for the quality of output, human error will be significantly averted.

[1] https://thelawdictionary.org/contract/

[2] https://www.investopedia.com/terms/c/commercialrealestate.asp

[3] https://www.nolo.com/legal-encyclopedia/pros-cons-investing-commercial-real-estate.html

[4] https://www.wolterskluwer.com/en/expert-insights/due-diligence-in-commercial-real-estate-transactions

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