From an outside perspective, it may not be obvious the integral role the law plays in the real estate industry. Even still, the two go hand in hand, and without the order and structure of law processes, the real estate sector would be in disarray. Coming from a law background, I can’t help but see all the connections. For those new to the commercial real estate sector though, there are a few laws you can’t afford to forget about no matter the property or location.
If a property is incorrectly zoned, investors can face a lengthy and expensive process to change the zoning through local legislation. Variances are often an easier solution for local boards to grant rather than permanently rezoning a property forever. Given that zoning and land use laws change from state to state, it’s essential for real estate executives to be well-versed on local laws and thoroughly investigate the land use options for a property before investing. As Matt Faustman says, “In addition to determining taxation, these regulations determine how a property (commercial or otherwise) can be used. Zoning regulations dictate whether a property can be used for retail operations and sometimes even what sort of retail operations can take place.“ This is particularly important for investors looking to lease commercial spaces. While an office may be an option, a store may not be. It all depends on the zoning.
Commercial property contracts are typically more nuanced than residential ones considering the long durations, lock-in periods and renewal basis. As Kunal Moktan further explains, “The tenant can vacate at any time whereas the landlord cannot ask them to leave for the lease period. There can also be a lock-in period (generally 3 years) during which the tenant cannot vacate the property. While analyzing an investment, the investor has to understand how the lease is structured and the inherent risks involved. In general, the longer the lock-in, the better it is for the investor.”
Landlord & Tenant Laws
The landlord-tenant relationship should be a mutually beneficial one. A strong contract can make or break an investor’s profits though when working with imperfect tenants. If a tenant finds a loophole that allows them to break a lease or not be held responsible for damages, those expenses associated with lost revenue and renovations would then fall on the owner. Many states have their own laws specifically intended to protect both landlords and tenants. As Angela Colley says, “Nearly every state in the U.S. has adopted a version of the Landlord and Tenant Act. The act governs what you, as a tenant, need to do and what the landlord must do for you. It covers everything from moving in and paying a security deposit, to privacy and evictions. While there are minor differences from state to state, most laws are universal.”