Due to limited supply and increasing demand, the stakes are high in the commercial real estate market on Long Island. But unfortunately, not every contract makes it to closing. There are a number of reasons a real estate deal might fall apart. Whether you’re a buyer or seller, it’s important to be aware of your legal rights if a contract falls through — and the steps you should take to protect your interests.
Common Reasons Commercial Real Estate Contracts Fall Through
Commercial real estate matters are legally and financially complex. When a contract falls through, both the buyer and seller can face significant financial losses. Some common reasons real estate contracts fall through can include the following:
- A buyer’s inability to secure financing
- Structural defects, environmental hazards, or other issues uncovered during inspection
- Zoning restrictions or issues with permits discovered during due diligence
- Liens on the property or other issues that prevent a clean transfer of title
- Appraisal issues or unmet contingencies
- A party’s failure to meet deadlines or uphold their contractual obligations
Additionally, a commercial real estate contract can fall through due to unfavorable market conditions. Rising interest rates and economic downturn may cause a party to reconsider the transaction and back out of the deal.
What Steps Should You Take if a Real Estate Contract Falls Through?
Whether you’re the buyer or seller, the first thing you should do if a real estate deal falls through is review the contract. A well-drafted agreement should include a breach provision that outlines the non-breaching party’s options and remedies. Similarly, if you’re looking to back out of the contract, it’s vital to determine if an “escape clause” is included. This type of provision allows a party to withdraw from a deal without incurring a penalty if certain conditions are not met, or an unforeseen event occurs.
In many cases, negotiation, mediation, or arbitration can help resolve disputes in connection with a real estate contract. These alternative dispute resolution methods can save the parties time and expense associated with litigation and allow them to find creative solutions while preserving crucial business relationships.
However, if the parties involved in a real estate dispute are not willing to compromise, it may be necessary to pursue litigation. Potential remedies that may be available to the non-breaching party by going to court can include monetary damages for financial losses and equitable relief — such as specific performance of the contract terms. In addition, liquidated damages in a predetermined amount may be available if they were stipulated in the contract.
How Can You Protect Your Interests in a Commercial Real Estate Transaction?
Careful planning is critical to ensure your interests are protected in a commercial real estate transaction. Both buyers and sellers should conduct thorough due diligence, negotiate strong contingencies, and work with a knowledgeable real estate attorney who can help ensure pitfalls are avoided.
It’s important for buyers to review title reports for any liens, encumbrances, or ownership disputes. They should evaluate zoning regulations to confirm the property can be used as intended and secure financing early. While financing problems are among the most common reasons for a deal to collapse, obtaining pre-approval can ensure a smoother closing.
Sellers can also take measures to safeguard their financial interests and ensure the transaction proceeds to closing. While not every buyer is qualified, it’s essential to vet all potential buyers early by requesting proof of funds and reviewing their track record. Additionally, addressing any issues with the property, such as outstanding liens, can reduce the risk of the buyer walking away from the deal.
Contact an Experienced Long Island Real Estate Attorney
If you’re involved in a commercial real estate transaction, an experienced business attorney can safeguard your legal rights and financial interests. At Barnes & Barnes, P.C., we offer high-quality legal services and trusted representation for a wide range of commercial and residential real estate matters across Long Island. Contact us at (516) 673-0674 to schedule a consultation.
