Commercial Real Estate

At Polishan Solfanelli, our experienced Scranton, Pennsylvania lawyers understand the complexities of commercial real estate transactions and are committed to guiding clients through every phase of the process. Whether navigating property acquisitions, drafting contracts, or resolving disputes, we provide detailed advice and strategic support that aims to protect your business interests and secure a successful outcome. By combining legal knowledge with an in-depth understanding of the local landscape, we are prepared to advise on varied real estate matters, from commercial leasing and zoning issues to property development and financing. We focus on building a strong alliance with each client, so we can evaluate opportunities, protect investments, and address potential obstacles before they become problems. Our team looks forward to discussing your specific goals and concerns, and we welcome you to contact us for more information at 570-562-4520. Let us help you move your commercial real estate objectives forward with confidence.

Purchase and Sale Agreements for Commercial Real Estate 

A purchase and sale agreement is a core instrument in any Pennsylvania commercial real estate transaction. It typically evolves from a preliminary letter of intent (LOI) that outlines major economic terms—such as purchase price, possible closing date, and basic deal structure. Once the parties formalize those concepts, their signed purchase and sale agreement becomes the controlling contract, addressing numerous provisions that protect both buyer and seller. In Pennsylvania, these agreements integrate both state-specific legal requirements and common commercial practices, striking a balance between achieving the deal’s business objectives and complying with relevant regulations.

• Parties and Authority:

Ensuring the correct names of the buyer and seller is paramount. If entities like Pennsylvania limited liability companies or corporations are involved, verifying that they hold valid certificates of organization or incorporation from the Pennsylvania Department of State helps confirm the entity’s legal standing. The transaction should be appropriately authorized according to organizational documents—such as an LLC’s operating agreement or a corporation’s bylaws—and typically evidenced by resolutions or consents. These steps prevent challenges arising from lack of authority.

• Detailed Property Description:

Conveying an accurate description of the property is crucial. Pennsylvania law recognizes the significance of including the correct street address, recorded boundaries, easements, and other encumbrances. In some instances, the deal involves personal property or fixtures that are subject to the Uniform Commercial Code (UCC). A buyer or seller transferring personal property along with real estate might choose to file UCC-1 financing statements to perfect a security interest in those assets. Clear identification of these elements within the purchase contract helps the parties avoid confusion at or after closing.

• Purchase Price and Deposits:

The purchase price and any earnest money deposit typically appear early in the agreement. These funds are often held in escrow by a title company, broker, or attorney. The contract typically spells out key scenarios, such as whether the deposit remains refundable during a due diligence contingency period, and under what circumstances the seller is permitted to keep it if the buyer defaults. Pennsylvania custom typically requires the buyer to provide a deposit, but the exact amount is negotiable. Parties should clarify the conditions for deposit return upon termination, ensuring they align with Pennsylvania contract law principles.

• Closing Date and Conditions:

Commercial real estate closings in Pennsylvania generally hinge on several conditions. The contract might mandate timely submission of financing commitments, a satisfactory title examination, or municipal approvals if the purchaser intends to change the property’s use. Under Pennsylvania’s Municipalities Planning Code (MPC), local land use boards may need to review projects or issue permits before a buyer can commence certain operations. Purchase contracts commonly include contingency provisions that let a buyer cancel or postpone closing if critical conditions—like financing or zoning approval—are not fulfilled.

• As-Is Clauses:

Many commercial real estate contracts in Pennsylvania contain “as-is” provisions. An as-is clause signals that the buyer accepts the property in its present condition, with limited warranties from the seller. Nonetheless, Pennsylvania law supports the view that active concealment or misrepresentation by a seller can override an as-is statement. If the seller knows of significant defects not easily discoverable, disclosure is recommended to reduce the risk of post-closing disputes. Buyers usually conduct inspections during due diligence to detect any defects or hazards that might affect the deal.

• Representations and Warranties:

Representations and warranties divide risk between parties, particularly regarding environmental compliance, title condition, and any pending legal disputes affecting the property. If a buyer discovers structural problems or code violations after closing that contradict the seller’s representations, the buyer may pursue contractual remedies, such as price adjustments or damage claims. Although negotiating broad warranties is common, sellers can limit scope by narrowing representations to matters within their knowledge. Both sides carefully document these provisions to manage future liability.

• Material Adverse Change (MAC) Clauses:

A MAC clause grants buyers the right to walk away or renegotiate if a major setback surfaces between signing and closing. Common triggers include environmental contamination, loss of key tenants, or governmental actions that negatively affect the property’s revenue potential. Pennsylvania courts generally respect the parties’ contractual freedom to define a “material” event, so detailed drafting is crucial for clarity. Buyers often scrutinize which circumstances will justify canceling or adjusting the transaction so neither side faces unwarranted uncertainty.

• Allocation of Costs and Closing Expenses:

Pennsylvania’s real estate transfer tax is a significant closing expense. Although state law sets the rate, parties can negotiate how they split or otherwise allocate it. Additionally, costs such as title search fees, title insurance premiums, recording fees, and local taxes must be assigned. Commercial practice in Pennsylvania often sees the buyer pay for any new survey or lender-required endorsements, while the transfer tax may be divided equally. The purchase agreement should detail how these expenses are distributed to prevent misunderstandings.

• Termination and Default Provisions:

These provisions outline the paths each side may take if the other fails to meet contractual obligations. If the buyer defaults, the seller might claim the earnest money deposit as pre-agreed liquidated damages; however, Pennsylvania law requires that such damages not constitute an unenforceable penalty. More aggressive remedies might include specific performance or, in some cases, additional damages. Conversely, if the seller defaults, a buyer can seek to recover the deposit and be reimbursed for expenses, or pursue specific performance to force a sale of the property. Properly drafted default clauses deter breaches and clarify the course of action if disagreements arise.

Consulting with a lawyer in Scranton, Pennsylvania can help ensure that your commercial purchase and sale agreement addresses all required provisions and complies with state and local laws.

Due Diligence in Commercial Real Estate Transactions 

Due diligence provides the buyer with a structured opportunity to examine critical aspects of the property, from structural features to legal compliance. In commercial projects, Pennsylvania’s property laws, environmental regulations, and local ordinances play an important role in determining whether the buyer’s intended use will be viable.

• Physical Inspections and Potential Red Flags:

Structural components—like foundations, roofs, and HVAC systems—often command attention during commercial property inspections. Buyers typically engage architects, engineers, or property inspectors to identify potential problems such as water damage, inadequate electrical capacity, or code violations under local building standards. In Pennsylvania, certain municipalities apply rigorous property maintenance codes that may require the seller to cure outstanding violations before transfer. Where major renovations are planned, verifying compliance with local building codes avoids complications once construction begins.

• Environmental Due Diligence:

Industrial or commercial sites in Pennsylvania can be subject to legacy contamination, prompting environmental site assessments (Phase I or Phase II). Phase I focuses on historical usage and potential contaminants, while Phase II includes sampling and testing. If contamination is confirmed, regulatory oversight by the Pennsylvania Department of Environmental Protection (DEP) may follow. Some buyers attempt to negotiate reduced purchase prices or secure indemnities if cleanup is necessary. Brownfield initiatives can incentivize redevelopment of contaminated properties, but buyers must remain mindful of cleanup obligations under the Pennsylvania Hazardous Sites Cleanup Act.

• Zoning and Land Use Approval:

Zoning ordinances dictate what activities a buyer can undertake on the property. Consulting local zoning officials can clarify permissible uses, density limits, and design standards. If a planned commercial activity is outside the property’s zoning designation, a buyer may seek a variance or special exception. This process can stretch timelines significantly. By adding a zoning contingency to the contract, a buyer gains the right to withdraw if municipal boards refuse to grant required approvals. In Pennsylvania, these boards function under the MPC and carefully weigh neighborhood impact when deciding requests.

• Title Searches and Common Encumbrances:

Title diligence protects buyers from acquiring land with unresolved easements, prior liens, or boundary disputes. In Pennsylvania, a thorough search investigates county real estate records, identifying any mortgages, mechanic’s liens, or other recorded claims. Mechanic’s liens typically arise if contractors were not paid for improvements. Buyers also review any restrictions recorded against the property—such as use covenants or long-term easements. Procuring a title insurance commitment that outlines these concerns lets the buyer evaluate risk before closing. Where issues exist, the parties may negotiate curative actions or require escrowed funds until the title is cleared.

• Leases and Financial Records:

Commercial properties often have existing tenants and rental income streams. While the Pennsylvania Landlord and Tenant Act of 1951 is primarily aimed at residential housing, certain procedural aspects (like eviction processes or security deposits) can overlap with commercial practice. Buyers are advised to review active leases, rent rolls, and financial statements to ensure that the property’s income aligns with what the seller has represented. If a new owner is assuming these leases, particular attention should be paid to whether lease terms allow for rent escalations, lease termination rights, or tenant renewal options that might affect the property’s long-term revenue.

• Review of Entity Compliance:

In transactions where either party is a business entity, buyers generally confirm that each entity is in good standing with the Pennsylvania Department of State. This includes verifying up-to-date filings, no outstanding tax obligations, and valid operating authority. An entity’s corporate or LLC documents should explicitly permit the contemplated real estate transaction. Absent such authorization, the deal might face legal challenges post-closing.

A Scranton, Pennsylvania attorney can help guide you through the complexities of due diligence in commercial real estate transactions.

Commercial Leasing Considerations in Pennsylvania 

Commercial real estate transactions frequently intersect with leasing matters, either through the assignment of existing commercial leases or the negotiation of new tenancies. Although Pennsylvania’s statutory framework for commercial leasing is not as comprehensive as it is for residential arrangements, certain state-specific issues arise when businesses rent property.

• Confession of Judgment Clauses:

Pennsylvania law permits clauses in commercial leases that allow a landlord to confess judgment against a tenant for unpaid rent or other breaches. While enforceable if drafted correctly, these clauses must adhere to state rules requiring clear disclosure. Tenants should be aware that by signing a lease with a confession of judgment provision, they effectively waive typical procedural protections. Landlords using these provisions should ensure strict compliance with statutory notice and waiver requirements to avoid judicial rejection of the clause.

• Default Remedies and Eviction:

Although the Landlord and Tenant Act of 1951 focuses on residential relationships, certain themes can carry over to commercial situations, such as the need for legal process in eviction. In commercial practice, lease documents often outline a landlord’s rights upon tenant default, which can include the right to lock the tenant out or accelerate rent. Pennsylvania courts may still require the landlord to follow an orderly legal procedure if disputes arise. Prudent drafting spells out the exact steps for default notices, cure periods, and a landlord’s ultimate remedies.

• Security Deposits and Guaranties:

Commercial leases may include substantial security deposits. The parties usually define when and how such deposits can be applied to tenant defaults. Some landlords also require personal guaranties from principals of smaller businesses. Pennsylvania contract law generally upholds personal guaranties if executed knowingly and voluntarily. Negotiating the scope of these guaranties (e.g., time-limited guaranties or “good guy” guaranties) is an important part of lease negotiations, preventing uncertainty over who bears liability if a tenant entity fails to pay rent.

• Subleasing and Assignments:

Commercial tenants often desire flexibility to sublease or assign their lease. Pennsylvania law allows parties freedom of contract to restrict or allow such transfers. Landlords typically require the right to approve sublessees or assignees, ensuring the new tenant meets financial and operational standards. If the lease lacks clarity, disputes may arise over a landlord’s power to withhold consent. Drafting clear sublease and assignment provisions helps both parties manage business exigencies.

• Tenant Improvements:

Commercial tenants frequently seek property modifications to suit their operational needs. If a property is in a municipality with detailed construction and maintenance codes, the tenant might have to secure local building permits, plan reviews, and inspections. Pennsylvania law grants municipalities considerable authority over building standards, so compliance with local codes is often integrated into the tenant’s improvement plans. The lease should specify who bears responsibility for obtaining permits and paying for code compliance. In some cases, the landlord agrees to reimburse a portion of these costs if the changes enhance the property’s long-term value.

Title Insurance, Escrow, and Survey Requirements in Pennsylvania 

Title insurance and escrow services are key risk-management tools in commercial transactions. Pennsylvania law sets specific guidelines on how funds must be handled and how title issues are disclosed to parties.

• Escrow Mechanics:

Typically, the buyer’s earnest money deposit sits in an escrow account held by a neutral third party—often a title company or attorney. This arrangement protects both parties: the funds remain secure while the buyer completes inspections and the seller sustains confidence that the buyer is serious. The escrow agreement spells out whether the buyer recovers the deposit if inspections reveal disqualifying conditions or if the buyer defaults. Pennsylvania practice generally follows well-established escrow protocols, ensuring clarity should a dispute arise over entitlement to the deposit.

• Standard vs. Extended Title Insurance Coverage:

Title insurance is commonly separated into owner’s policies and lender’s policies. An owner’s policy safeguards the buyer against title defects that impair ownership, while a lender’s policy protects a mortgage lender’s collateral interest. Standard policies typically exclude unrecorded easements or boundary disputes, whereas extended policies or endorsements can cover additional scenarios, such as survey discrepancies. Because Pennsylvania counties vary in how they record or track encumbrances, a thorough search plus any needed endorsements help limit the risk of discovering an overlooked title problem later.

• ALTA/NSPS Surveys:

The American Land Title Association/National Society of Professional Surveyors (ALTA/NSPS) survey is often used in commercial real estate. These in-depth surveys identify boundary lines, easements, utility lines, and encroachments. For Pennsylvania properties, the survey can clarify whether site features comply with setback requirements and building lines established under local codes. Obtaining this survey before closing offers assurance that the buyer fully understands the land’s dimensions and any intrusion by neighboring properties.

If you need guidance navigating title insurance, escrow processes, or survey requirements, you can seek assistance from an attorney in Scranton, Pennsylvania.

Zoning, Land Use, and Environmental Considerations in Pennsylvania 

Local municipalities in Pennsylvania maintain authority to regulate and shape how real estate is used. Commercial buyers should note that requirements vary significantly among municipalities, making early investigation of land use regulations essential to avoid unexpected project delays or denials.

• Zoning Compliance and Variances:

The Pennsylvania Municipalities Planning Code grants local governments the power to adopt zoning ordinances. These ordinances typically dictate whether commercial, residential, or industrial uses are permitted in a certain zone. Buyers who intend to alter a property’s use or exceed dimensional standards—like building height or parking ratios—may need a variance or special exception. Public hearings before municipal zoning boards are standard practice. Although a denial can be appealed to the Court of Common Pleas, the appeals process adds costs and can derail a transaction if closing cannot be postponed.

• Land Development Approvals:

Larger commercial projects often trigger land development review. Developers must submit site plans detailing stormwater management, traffic impacts, and utility connections. Pennsylvania municipalities can impose additional conditions, such as sidewalk installations or landscaping requirements, under their subdivision and land development ordinances. Some municipalities have more stringent environmental checks—especially near wetlands or floodplains. Negotiating contingency periods in the purchase agreement to accommodate these approvals is a common approach to protect the buyer’s investment of time and effort.

• Environmental Liabilities:

The Pennsylvania Department of Environmental Protection enforces environmental laws and may require remediation of contaminated sites. Discovery of hazardous substances can lead to orders, fines, or mandated cleanups under the Hazardous Sites Cleanup Act or other statutes. Local ordinances can add further layers of requirements, for instance where municipalities restrict stormwater discharge or limit impervious surfaces to protect watersheds. Prospective buyers typically integrate environmental due diligence into the deal timeline, possibly seeking contractual protections or price reductions if existing contamination is uncovered.

Local Ordinances and Permitting Variations 

Pennsylvania encompasses diverse jurisdictions, ranging from major urban centers to rural boroughs. Each municipality wields distinct zoning rules, permit processes, inspection procedures, and building codes. A transaction in a large city may face higher administrative complexity than one in a smaller township.

• Building Codes and Inspections:

Although Pennsylvania has adopted statewide building standards, local jurisdictions can implement additional codes or enforce them with varying rigor. For example, cities with older building stock may require specialized inspections to confirm compliance with safety mandates. Where a buyer plans major renovations or a change in occupancy, local inspectors will likely review the project for compliance with fire codes, egress standards, and accessibility rules. Understanding these regulations in detail ensures that buyers can project realistic construction costs and timelines.

• Significant Local Variations:

In larger municipalities, permit applications might involve multiple agencies—such as planning commissions, health departments, and historical preservation boards. In smaller municipalities, the process may be more informal, yet a single official might require multiple site visits. Buyers who undertake projects in a location like Philadelphia often face extra steps, such as obtaining certain licenses for commercial activities, ensuring compliance with local tax regulations, or fulfilling historical district guidelines if the property is in a protected area. Early coordination with local authorities can circumvent permit delays that jeopardize closing schedules.

• Enforcement and Penalties:

If a commercial property fails to meet local ordinances, owners may face fines, or they may be barred from obtaining occupancy permits until they remedy code infractions. While some municipalities prefer to work collaboratively with property owners to achieve compliance, others impose daily penalties or other enforcement actions. Buyers who neglect due diligence on local ordinances risk inheriting unresolved violations that could significantly delay or complicate occupancy and use. A Scranton, Pennsylvania lawyer can provide valuable insight into how local rules and enforcement practices may affect your commercial real estate transaction.

Commercial Property Insurance 

Commercial property owners in Pennsylvania often purchase insurance to protect against financial losses from property damage, third-party liability, or business interruptions. The choice and scope of coverage can greatly influence operational stability after a loss event.

• Replacement Cost vs. Actual Cash Value:

Some owners prefer replacement cost policies that pay for rebuilding structures to a similar standard, ensuring minimal out-of-pocket expense if a casualty occurs. Actual cash value (ACV) policies, by contrast, factor in depreciation, resulting in smaller payouts. Premium costs differ, so buyers must evaluate which approach balances risk and financial prudence. In older Pennsylvania buildings, replacement cost coverage could be particularly beneficial, given that code-related upgrades may be required post-loss.

• Policy Exclusions and Endorsements:

Standard commercial property policies often exclude damage from floods, earthquakes, or certain natural disasters unless added through endorsements. Owners whose buildings lie in designated flood zones might be required by lenders to procure flood insurance. Other endorsements—like equipment breakdown or ordinance and law coverage—fill gaps in standard policies by providing funds to bring damaged property up to current building codes. Reviewing which endorsements apply can save significant capital in the event of unforeseen damage.

• Local Insurance Requirements:

Some municipalities mandate specific coverage limits, especially in special-use districts. If the property’s intended use involves higher-risk operations—like storage of flammable materials—additional coverage may be required. Combining general liability coverage with property insurance under a commercial package policy can yield cost efficiencies. Owners should also confirm whether any local licensing requirements demand liability coverage above typical minimums.

Eminent Domain and Condemnation in Pennsylvania 

Commercial property owners may confront the possibility of condemnation. Under Pennsylvania law, federal, state, or local governments can exercise eminent domain authority to acquire private property for public use, such as building roads, parks, or public facilities.

• Basics of Eminent Domain:

The Eminent Domain Code in Pennsylvania governs the condemnation process, detailing the procedures agencies must follow and the compensation rights of property owners. Public use is interpreted broadly and can encompass not only highways or municipal buildings but occasionally redevelopment initiatives intended to revitalize blighted areas.

• Condemnation Risks in Commercial Transactions:

A buyer should investigate whether the property is marked for future public projects or is within a redevelopment zone. Those signals often emerge during municipal planning commission meetings or from local master plans. If there is a possibility the property might be taken through eminent domain, it can affect long-term value and financing. Owners or developers uncertain about condemnation should weigh potential compensation against anticipated profits from commercial use.

• Compensation and Appeals:

If a government entity proceeds with condemnation, the property owner is typically entitled to just compensation, which should reflect the fair market value. Commercial properties with significant revenue streams can warrant higher valuations. Disputes over compensation can go to Pennsylvania courts for resolution. Owners may submit evidence of the property’s value—like appraisals, financial records, or comparable sales. If the condemnation reduces, but does not entirely eliminate, property value, partial damages may be awarded. Engaging with relevant municipal authorities and staying alert to planned public works projects helps owners manage condemnation concerns before they become urgent.

A lawyer in Scranton, Pennsylvania can assist commercial property owners who are navigating eminent domain and condemnation proceedings.

Foreclosures of Commercial Real Estate 

When a commercial borrower in Pennsylvania fails to satisfy loan obligations, lenders often seek recourse through judicial foreclosure. Although this process can be lengthy, it offers lenders a path to recover funds by taking possession of the property and selling it at a sheriff’s sale.

• Borrower Options Before Foreclosure:

Owners behind on payments are not necessarily bound to lose their property. They may negotiate loan modifications to reduce interest rates or extend maturity dates. A short sale is another possibility if the lender agrees to accept a purchase price below the mortgage balance. By conveying a deed in lieu of foreclosure, the owner transfers the property directly to the lender to avoid legal proceedings. Such alternatives can spare both parties expensive litigation and might minimize damage to the borrower’s credit.

• Judicial Foreclosure and Sheriff’s Sale:

The lender initiates foreclosure by filing a complaint under the Pennsylvania Rules of Civil Procedure. If the court enters a judgment, the property proceeds to a sheriff’s sale, where it is auctioned. Any party can bid, including the lender, which may submit a “credit bid” up to the amount owed. If the property sells for less than the outstanding debt, the lender can pursue a deficiency judgment, subject to certain procedural requirements. This judgment may hold the borrower personally liable for the shortfall, depending on loan structure and whether there was a personal guarantee.

• Receivership:

If the property generates substantial rental income, a Pennsylvania court may appoint a receiver to administer the property during foreclosure. The receiver collects rents, arranges for maintenance, and ensures compliance with local regulations. This approach helps preserve asset value and prevents a borrower from abandoning property operations. Lenders often request receivership in large-scale commercial properties—like office buildings or shopping centers—to protect cash flow during the litigation process.

Business Entity Structures and Financing Nuances 

Commercial real estate transactions commonly involve sophisticated financing approaches and multi-tier ownership structures. Pennsylvania recognizes a range of entities—LLCs, limited partnerships, corporations—and each affects liability and tax issues differently.

• Entity Selection and Authorization:

Buyers aim to shield personal assets from business liabilities. Forming an LLC or corporation can offer such protection, provided the entity observes corporate formalities and maintains separate financial accounts. Pennsylvania’s Department of State governs formation, requiring that entities file initial certificates and remain in good standing with ongoing compliance. Where authorization documents—like operating agreements or corporate resolutions—explicitly permit real estate transactions, the entity’s authority to buy or sell property becomes more robust.

• Financing and UCC Filings:

Commercial real estate lenders in Pennsylvania often secure their interests not only through mortgages on real estate but also through liens on personal property. UCC-1 financing statements filed at the state or county level protect the lender’s right to repossess certain collateral in a default situation. Buyers should investigate whether existing UCC-1 statements encumber fixtures or equipment. Subject to negotiation, the seller may be required to terminate or amend these filings at closing to ensure the buyer takes unencumbered title.

• Mezzanine Financing and Cross-Collateralization:

Complex projects sometimes employ mezzanine financing, in which a lender takes a pledge of ownership interests in the borrowing entity rather than a real estate mortgage. If default occurs, the mezzanine lender can assume control of the entity more swiftly than proceeding with a real property foreclosure. In cross-collateralization agreements, several properties may serve as collateral for a single loan or a portfolio of loans, tying each asset’s fate to the performance of the entire group. Diligent documentation helps all parties understand how defaults in one asset might trigger remedies against other collateral.

• Tax Implications:

Real estate transfer taxes—which can involve both state and local components—are routinely negotiated in Pennsylvania commercial deals. Parties also weigh property taxes, capital gains taxes, and local business privilege taxes where applicable. Transaction structures, such as 1031 exchanges, may be relevant for deferring capital gains, although such exchanges are governed primarily by federal law. Incorporating tax planning at the outset can prevent unwelcome surprises when the transaction closes and subsequent filings become due.

A Scranton, Pennsylvania attorney can provide guidance on entity selection, financing options, and tax strategies for commercial real estate transactions.

Property Assessments and Tax Appeals 

In Pennsylvania, each county assesses real property to determine the taxable value. Commercial buyers need to understand how these assessments may evolve, especially if they undertake major improvements or if local assessment systems undergo periodic reassessments.

• Understanding Property Assessments:

County assessment offices assign a fair market value to the property for tax purposes. The assessed value may or may not align with the property’s purchase price, leading some buyers to challenge the computation. In a commercial transaction, significant discrepancies can arise if the current assessed value is outdated or if the property’s actual market value is much lower than what the assessor has recorded.

• Appeal Process:

Owners who believe their property is over-assessed can appeal to the county’s board of assessment appeals. They generally must present evidence, such as recent appraisals, income statements, or comparable sales data. Provided the board finds the assessment unfair, it may reduce the assessed value, thus lowering annual tax bills. Buyers acquiring higher-value properties often evaluate potential savings through an appeal, though they also weigh whether improvements to the property could trigger a reassessment that might increase taxes down the line.

• Impact on Financing:

Mortgage lenders typically consider the property’s net operating income when determining loan terms. If an owner successfully reduces the tax burden via an assessment appeal, that can improve cash flow and possibly allow for more favorable refinancing terms. Conversely, a property that has been assessed below market value for years might see a steep increase if a county-wide reassessment is implemented. Buyers should factor in the likelihood of assessment adjustments when projecting operating expenses and debt service coverage ratios.

Practical Examples and Additional Considerations 

Commercial real estate transactions in Pennsylvania often involve unique facts. Hypothetical scenarios can illustrate the complexities:

• Discovery of Undisclosed Environmental Issues:

A buyer signs a purchase agreement to acquire an industrial site. Phase I testing indicates possible soil contamination. The buyer commissions Phase II tests, confirming hazardous chemicals. If the costs of remediation exceed the buyer’s threshold, the buyer may invoke a termination clause tied to environmental conditions. Should the seller refuse to remediate, the contract’s language about environmental contingencies will govern whether the deposit is refunded and whether the buyer can walk away without penalty.

• Zoning Hurdles and Variance Requests:

A developer plans to repurpose a large warehouse into a mixed-use facility. Local zoning, however, prohibits combining certain commercial and residential uses in one zone. The developer files for a variance, triggering a hearing before the zoning board. If the board denies the request, the contract may allow the developer to withdraw without forfeiting the deposit. Understanding local sentiment and the board’s track record can guide negotiations on how long to wait for approvals.

• MAC Clause in Practice:

A buyer agrees to purchase a retail center with several tenants in place. Before closing, the center’s anchor tenant announces it will vacate. If the agreement contains a MAC clause specifically triggered by the early loss of a key tenant, the buyer can attempt to renegotiate or terminate. The precise definition of “material adverse change” spelled out in the contract determines whether this scenario qualifies.

• Potential Receivership in Foreclosure:

An owner of a struggling shopping complex defaults on the mortgage. The lender requests the court appoint a receiver so rents can be collected to cover critical expenses like utilities and insurance. This measure stabilizes the property throughout the foreclosure, preserving asset value for a potential buyer at a sheriff’s sale. Tenants benefit from continuity, avoiding a situation where the property might fall into disrepair due to lack of management.

For guidance through these challenging situations, consider consulting with an attorney in Scranton, Pennsylvania.

Additional Strategies for Strengthening Transactions 

Commercial real estate deals in Pennsylvania benefit greatly from thorough planning and communication. Buyers, sellers, and lenders often coordinate closely to minimize the likelihood of unforeseen obstacles.

• Negotiating Key Provisions:

While price is often the main sticking point, ancillary clauses can also determine success, such as disclaimers on property condition, responsibility for tax increases, or the handling of lease assignments. Because Pennsylvania law generally enforces contracts as written, parties should draft each provision with clarity. Striking a balance between buyer protections (like longer due diligence) and seller assurances (like non-refundable deposits after certain dates) can foster deal stability.

• Constructing Thorough Due Diligence Timelines:

Scheduling separate contingencies for environmental inspection, title evaluation, financing approval, and zoning checks helps avoid last-minute scrambling. If the property is large or has multiple tenants, the buyer may need more time to delve into each occupant’s lease. Inspections for building code compliance, structural integrity, and mechanical systems can uncover substantial defects. Properly allocating time for re-inspection if repairs are made can help the buyer confirm that problems are adequately resolved.

• Coordinating with Lenders Early:

Commercial lenders may require specific documentation before approving a loan, such as an in-depth appraisal, updated property financials, or specific insurance endorsements. Engaging the lender early ensures that the buyer can adjust the contract’s closing schedule if the lender’s underwriting or appraisal takes longer than anticipated. If specialized financing, like mezzanine loans, is pursued, it is crucial to ensure the transaction structure accommodates those documents and filing requirements.

• Using Contingencies Wisely:

Pennsylvania real estate contracts often include financing contingencies, zoning contingencies, or environmental contingencies. Buyers should be realistic about the scope and duration of these provisions. Overly broad contingencies might deter a seller from accepting an offer, while insufficiently protective contingencies can expose a buyer to unwanted risk. A carefully measured approach can help both parties find a middle ground and maintain deal momentum.

Selected Key Terms (Glossary) 

Below are some frequently encountered terms in Pennsylvania commercial real estate:

• ALTA/NSPS Survey: A detailed land survey conforming to standards set by the American Land Title Association and the National Society of Professional Surveyors, identifying boundaries, improvements, utility lines, and encroachments.
• Brownfield: Land with confirmed or suspected environmental contamination that may benefit from remediation incentives or redevelopment programs.
• Confession of Judgment Clause: A lease or loan provision allowing one party to consent in advance to a judgment against them, bypassing typical court procedures.
• Eminent Domain: The legal power of government to seize private property for public use, subject to compensation for the owner.
• Material Adverse Change (MAC) Clause: A contractual provision allowing renegotiation or termination if significant, detrimental events occur pre-closing.
• Mechanic’s Lien: A statutory lien carried by contractors or suppliers who have not been paid for improvements to real property.
• Pennsylvania Municipalities Planning Code (MPC): The primary state statute governing local land use, zoning, and development processes.
• Receivership: A court-authorized remedy placing a property under the management of a receiver to preserve value during legal proceedings.
• Phase I and Phase II Environmental Site Assessments: Investigations analyzing property history (Phase I) and conducting physical testing (Phase II) to identify possible contamination.
• Variance: Permission from a municipal zoning board allowing a deviation from specific zoning requirements.

By addressing these varied aspects—purchase contracts, due diligence, financing, local ordinances, insurance, eminent domain, and foreclosure processes—parties in a Pennsylvania commercial real estate transaction can minimize surprises and streamline their path to closing. Thorough planning, transparent negotiation, and an awareness of local and state regulations reduce the risk of disputes while laying a foundation for ongoing success with the acquired property. Guidance from a Scranton, Pennsylvania lawyer can help you navigate these matters confidently.

Legal Assistance With Your Business Needs

Securing insightful legal advice is crucial for businesses to thrive in Pennsylvania’s vibrant commercial environment. At Polishan Solfanelli, our experienced Scranton, Pennsylvania lawyers are committed to guiding businesses through important decisions, whether you are purchasing real estate, forming a new entity, or clarifying regulatory obligations. We understand the complexities of commercial transactions and strive to provide strategic recommendations that align with your financial and operational goals. Our background in negotiating contracts, assessing liability, and addressing unforeseen challenges empowers you to move forward with confidence. Whether you need legal support on a short-term matter or a long-term business venture, our approach emphasizes clarity and communication at every stage. For personalized guidance that helps you make informed decisions, reach out to Polishan Solfanelli at 570-562-4520. We look forward to discussing your business objectives and helping you navigate commercial real estate and related legal issues. Let us serve as your steadfast committed partner.