Monday, May 28, 2012

Commercial Real Estate Agents - Offers and How to Negotiate Them

In commercial real estate sales and leasing, it is common to have offers being made for property transactions.  The offers will be made by tenants or buyers of property as the case may be and you as a salesperson working on behalf of the client will be involved.   Here are some tips from our Newsletter.

As we all know, verbal offers are not worth the paper they are ‘written on’ (excuse the pun).  So the rule is that every offer should be in writing.  As to how that ‘written offer’ is created, you will need to prepare standard documentary forms that legally and correctly capture the intentions of the parties.  It is recommended that your draft templates for this purpose are referred to a solicitor to ensure that the documents comply with local legislation and laws.

Many agents have templates in one form or another for that ‘offer’ process.  Importantly the templates should be structured for the property type, the transaction, and the laws that apply to property sales and or leasing in your area.

Sales Offer

When making or taking an offer to purchase a parcel of land or a commercial property, the offer can be made in the form of a contract, and in that case the salesperson may construct a contract document where the laws of offer and acceptance apply.   When the parties accept the offer on the contract, the contract stands.  That is a good way to negotiate.

When it comes to a very complex commercial property, the contract may still be prepared by a solicitor if circumstances show that it is wise.  In such case the offer that is made and negotiated by the agent could be in the form of a ‘heads of agreement’ from which the client’s solicitor will then be involved with the final contract preparation.   A ‘heads of agreement’ is not typically legally binding, but you can talk to your local solicitors about that if you need something that is enforceable.

The message for salespeople here is that they should not prepare the contract of sale if they do not have the knowledge to do so.   Sound and strong legally binding contracts are always required when it comes to commercial property.  Errors and omissions can be costly mistakes for all concerned.

Lease Offer

Offers to lease commercial, industrial, or retail property are not as easy to construct and enforce as those that apply in the basic sale process.  A lease is a very complex document, and some agents and salespeople will only negotiate basic lease terms, and then get a ‘letter of offer’ or ‘heads of agreement’ signed to move things to the next stage.  That is a wise move to take matter forward.

The structure of an ‘offer to lease’ or ‘heads of agreement to lease’ allows us to get the basic facts of the lease deal down on paper so we have something to negotiate with between the parties.  In many cases this form of lease offer is not legally binding because the full terms of the ‘offer’ and final lease are quite complex; they are put together later with the help of the clients solicitor. 

In other words a complete lease is required to create the best legally binding agreement for the client; some agents are not allowed to do this at law, or do not want to create such a document.  That view is sensible, and many of us in the industry prefer a solicitor to put the final documents together; that is what solicitors are good at, and many a commercial property is overly complex in many different ways.  Solicitors know how to handle that.

Agents are Negotiators

It should be said that real estate agents are ‘negotiators’, and we are there to find the right people for the transaction and then put the basics of the deal together.  We are marketers of property, and on that basis we are specialists to help the property owner sell or lease as the case may be.  That is where and why the offer process works. 

It is a wise practice to involve solicitors in any final contract and lease documentation, and certainly so if the property transaction is complex in any way.  Know your legal and documentary laws and limitations and work within them.  Set some process rules for yourself.
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