The decision to lease commercial space vs. buying commercial space is often circumstantial, and frequently based on the current state of the real estate market. If you want to preserve a right to purchase the space your business is renting, there are a number of ways to draft the commercial lease in a manner that allows the lessee to purchase the leased space in the future.
Adding the Option to Buy Leased Property in the Future
Most business owners who lease real estate have heard the terms “Option to Purchase,” “Right of First Refusal,” and “Right of First Offer.” But few are fully aware of the options these clauses provide or the distinctions among them. Furthermore, these provisions offer little to no advantage if they are not utilized in the appropriate manner, rendering them essentially worthless.
Option to Purchase
When adding this provision, it is critical to provide enough specific detail to clearly achieve the desired goal. Unfortunately, the Option to Purchase often lacks sufficient detail to make it effective.
The Option to Purchase should include a notice clause with required timing, along with a detailed description of how to determine the property’s value. For example, will the value be set now, at the time the contract is drafted? Or will it be decided at the time of purchase (more likely)? If the latter, it is crucial for both parties to determine a way to reach a purchase price that is fair and justifiable for all involved.
Right of First Refusal Vs. Right of First Offer
You should also enlist the help of an experienced commercial real estate lawyer if you wish to include a Right of First Refusal (ROFR) or Right of First Offer (ROFO) in your commercial lease. Although these clauses are often used interchangeably, they are quite different. The ROFR is usually triggered when the property owner receives an offer to buy the property from someone other than the commercial tenant. At this moment, the commercial tenant, as the holder of the ROFR, is given the right to buy the property at the same terms, or based on the terms of the ROFR.
The ROFO, on the other hand, is usually triggered when the property owner decides to sell the property. At this point, the commercial tenant (ROFO holder) is given the right to make the first offer.
As with the Option to Purchase, the details for both the Right of First Refusal and Right of First Offer are critical to achieving the desired outcome. It is in your best interest, whether buying, selling or leasing a commercial property, to work with an experienced PA commercial real estate attorney.
Having an experienced commercial real estate lawyer by your side ensures that you only sign a contract with your best interests in mind. Furthermore, your attorney should be able to assess risk, enhance your market awareness, and offer an extensive network of business connections.
Contact a Pennsylvania Commercial Real Estate Lawyer Today
If you are a commercial property owner or landlord, or a business owner wishing to lease or purchase a commercial property, the legal team at Reager & Adler, PC can help. We have extensive experience in this very specific area of real estate law, along with a deep understanding of the perspectives of a business owner. From structuring and closing, to drafting and reviewing contracts and the development of loan documents, we can help you navigate this process in the quickest, most seamless manner possible. Contact us today for a confidential consultation and to learn more.
David W. Reager, Founder & Managing Partner
Reager & Adler, P.C.
2331 Market Street
Camp Hill Pa. 17011