Whether your business is located on the east or west coast, one common question arises when considering a future real estate venture – when should you consult with a real estate attorney? Whether the transaction involves a purchase of commercial property, a residential investment or establishing a real estate syndicate, this month’s Risk Management Tip can serve as a guide for when to secure a real estate attorney for your next investment venture.
When Do you Need a Real Estate Attorney
Due to the ever-changing real estate and tax environment, it is important to identify when you need a real estate attorney prior to entering into your next real estate transaction. Guidance from a real estate attorney is typically used in the following circumstances:
- State Law Requires an Attorney’s Involvement. Depending on where a piece of property is located, or where your business venture may be established, some states mandate that an attorney be involved with real estate deals and transactions. For example, many states require that only an attorney participate in and facilitate the close of certain real estate transactions. This is important because such states may also prevent real estate agents from performing traditional transaction-related services as it may be deemed “practicing law.” As such, conducting due diligence on state regulations and engaging a real estate attorney in advance should be part of your investment plan prior to proceeding with any real estate transaction.
- To Assist with Financing/Debt Financing Arrangements. The structure of your real estate transaction may warrant the engagement of an experienced real estate attorney. For example, when entering into a debt financing arrangement – whether with a third-party or financial institution for a real estate purchase – a competent real estate attorney can assist with the review, and if applicable, drafting of all financing agreement(s), and can provide ongoing counsel related to the debt financing terms.
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To Negotiate Contract / Deal Terms. If your real estate transaction contains potentially “unique” or specialized deal points such as:
- Triggering of certain default events;
- Having various operating arrangements or a Board of Managers;
- Specifying future fund-raising opportunities; and/or
- Requiring solicitation arrangements,
a competent real estate attorney can help to explain and simplify the complexity of your transaction, mitigate risks, and identify areas of potential exposure.
4. Formation of Corporate Entities and Establishment of the Investment Deal: Outside of traditional purchases and sales of real estate, there are a number of circumstances related to real estate transactions that necessitate the formation of corporate entity(-ies) (such as LLCs, LPs or Corporations), and require deal documents (such as offering memoranda, Limited Partnership Agreements or Private Placement Memorandums) or other transaction related and support agreements. For example, a real estate investment trust (“REIT”) often can include a multi-level entity structure, investment disclosure materials, management and service agreements, etc., which should be drafted and/or reviewed by real estate attorneys.
What Else Can a Real Estate Attorney Do?
A real estate attorney often wears many hats. For example, a real estate attorney can provide transactional assistance such as reviewing and analyzing a Purchase and Sale Agreement, performing due diligence, or facilitating the close of a particular transaction. Alternatively, some real estate attorneys can provide more specialized services. For example, the establishment of a Tenancy in Common (“TIC”) arrangement, which can require extensive contract drafting and the preparation of various operating documents to describe the TIC arrangement and management of the TIC asset. Accordingly, a real estate attorney can be a necessary and valuable resource to help you receive competent advice before proceeding with a real estate transaction. Such advice can save you from unexpected headaches and buyer’s remorse later.
Conclusion
With the dynamics of our economy, we know that many investors are looking for new opportunities in real estate. As new real estate opportunities and potential investments arise, you should ensure that you have the best team to protect your best interest – including engaging a competent real estate attorney to support you and your business.
Jacko Law Group, PC assists firms, businesses, and individuals through the nuanced considerations relating to real estate investments and transactions. For more information on this topic, please contact us at (619) 298-2880 or visit us at jackolg.com.
JLG works extensively with investment advisers, broker-dealers, investment companies, private equity and hedge funds, banks and corporate clients on securities and corporate counsel matters. For more information, please visit https://www.jackolg.com/.
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