By: Edward B Woodall

In today’s blog, attorney Edward Woodall answers questions about the most common commercial real estate queries.

Question: Should I form a corporation or limited liability company to take title to the property?

Answer: Yes, you should probably form a corporation or limited liability company to take title to the property you want to purchase. While you should consult an attorney to determine what entity is right for you, advantages can include liability protection, preferential tax treatment, and greater ease in financing or bringing on partners.

Question: Do I need to buy title insurance?

Answer: Yes. Title insurance protects your use and ownership of the properties from other parties claiming ownership, easements, and other rights with respect to the property. Watch this video, Title Insurance for Commercial Properties, for more details.

Question: What is an estoppel certificate?

Answer: An estoppel certificate is a statement of certain facts that the signer certifies to be correct as of a specific date. Purchasers or lenders in commercial real estate transactions often request estoppel certificates from tenants to confirm the key terms of the lease and ensure there are no defaults.

Question: What is TICAM?

Answer: TICAM stands for Taxes, Insurance, and Common Area Maintenance. These charges are often added to the base, minimum, or fixed rent in a lease, especially leases that are called “net” or “triple net.” Some leases use terms like TICAM; others call it “additional rent.”

Question: How is property valued?

Answer: There are three basic appraisal methods used to value property.

• The cost approach values the property based on what it would cost to replace the existing improvements.
• The sales comparison approach values the property by comparing it to similar properties that have recently sold or gone under contract in the market.
• The income capitalization approach calculates the property’s value as a multiple of its rental income.

Depending on the purpose of the appraisal and the property’s unique characteristics, a purchaser, lender, or landlord may use one or more of these methods to value a property.

Question: What happens if I sign a personal guarantee for a lease or loan?

Answer: By signing a guarantee, you become liable for the obligations and liabilities of another party, usually a business in which you are a member or owner – this means surrendering the limited liability protections offered by forming a corporation or limited liability company.

Question: What is a letter of intent?

Answer: A letter of intent is a document that summarizes the key deal points in a future lease or purchase agreement and is used as a sort of “ground rule” for the negotiation of the final agreement. Letters of intent are usually non-binding (other than some confidentiality and exclusivity obligations), but it is often considered poor form to attempt to renegotiate or “retrade” points agreed to in a letter of intent.

Question: What is a Phase I Environmental Site Assessment? Do I have to get one?

Answer: A Phase I Environmental Site Assessment (ESA) is a non-invasive review of a property’s historical and present uses and physical conditions to determine whether environmental contamination is likely. Phase I ESAs are recommended before purchasing property and are typically required by lenders.

Conclusion

In this blog post, we’ve reviewed only a few of the most common commercial real estate questions. Contact us today to learn more about commercial leasing or what Venn Law Group’s commercial real estate attorneys can do for you.

Edward B. Woodall is an attorney at Venn Law Group who works incorporate law and commercial real estate, including leasing, financing, taxation, business structures, and dispute resolution. He is passionate about helping business owners solve a variety of complex legal problems and has performed more than 100 hours of pro bono work. In addition to his law degree, he also has a background in history and Spanish.