One of the more complex business transactions a partnership will experience is buying real estate. When it is just one business professional buying a piece of real estate, there is no need for the checklist of items that partnerships have to consider. But for partners, buying a piece of real estate is a process that requires legal guidance and comprehensive planning.
Who Owns How Much?
Most partnership agreements include how much of the profit and losses each partner is responsible for. But it can be dangerous for each partner to assume that those numbers also apply to a real estate purchase. How much is each partner responsible for when it comes to property taxes? How much is each partner responsible for when it comes to property maintenance? How would the proceeds of the sale of the property be split up amongst the owners? Before partners buy a piece of commercial real estate, it is important to work with an attorney to get these details ironed out.
What’s The Plan?
It has happened before where partners enter into a real estate deal without having a comprehensive understanding of the intent of the property. How will the property be used? Will the property be rented out? If so, who decides on what types of tenants to take on? Who will bear the costs of any upgrades required by tenants? Before you and your partners buy a piece of commercial real estate, you first need to put your plan in writing and make sure that every partner is on the same page.
It is difficult for partners to see into the future and determine what types of upgrades and changes will be made to a property they are purchasing. But the partnership agreement can outline a procedure that should be followed for one partner to recommend upgrades or renovations to the property, and then have the entire group work together to come up with a plan.
Speculating Commercial Property
An extremely popular trend these days is for partnerships to be put together expressly for the purpose of doing speculative buying on real estate. In some cases, the properties are developed into valuable commercial assets and the partners walk away with a lot of money. But more often than not, these ventures fail.
It is important that each partner be involved in the process of creating guidelines that are used to buy speculative property. The partners can all agree that they are only buying property to eventually sell it to a developer, but that must be put in writing to prevent a partner from suing because they feel that a particular property should be developed by the partnership instead of sold.
When a business professional buys commercial property, they look to get all of their legal papers together to be sure that the sale is completed properly. But when a partnership sets out to buy property, then there are many more details to attend to. A partnership that intends to invest in real estate needs to have a competent lawyer on their side to prevent costly legal battles in the future, and to ensure that each partner understands the intent of every purchase.