Commercial real estate: buying a building or premises

Even a legally “clean” asset can turn out to be unsuitable for the planned activity because of features of the land plot, urban planning restrictions, permitting procedures, or other legal nuances. Ivan Topor, head of the real estate and construction practice at the law firm “DE-JURE,” explains the aspects to pay attention to before concluding a deal.

1. How does buying commercial real estate differ from buying an apartment?

Formally, purchase-and-sale transactions for commercial and non-commercial real estate may look similar. However, the main difference lies in the purpose of the acquisition. Residential property is most often bought for personal residence or for renting out. Commercial real estate, by contrast, is intended for conducting business activities, so many more aspects need to be checked when acquiring it.

In addition to the legality of the transaction itself, the rights to the land plot, and its designated use, it is important to determine whether the law and urban planning documentation allow the property to be used for the specific business purposes for which it is being bought.

Even if the purchase is fully legal, that does not mean the owner will be able to implement the planned business project. You should not assume that any restrictions can be “fixed” after buying the asset. If the property does not match the intended activity, in many cases this can be remedied lawfully, but only by going through the permitting procedures prescribed by law, which may be complex and lengthy.

That is why it is important, before purchasing, to assess whether it is realistically possible to obtain all necessary approvals. Sometimes properties on the market already have prepared design and permitting documentation, which significantly simplifies the implementation of the future business project.

2. How can real estate be acquired by purchasing the company that owns the property?

Acquiring real estate by buying the company that owns it is a fairly common practice. It can be easier than buying the property itself, and such a transaction can allow for lower taxes.

In some cases a commercial property belongs to a legal entity, for example a limited liability company. Instead of entering into a sale-and-purchase agreement for the property itself, the parties may sell the company’s ownership interests.

Often a legal entity is created specifically to carry out such a project. It obtains the right to develop the land plot, constructs the property, registers ownership, and afterwards the property remains its sole asset. Subsequently, the new investor is sold not the building but 100% of the company’s corporate rights, becoming the owner of the company together with its assets.

At the same time, in such cases it is necessary to check not only the real estate itself but also the legal entity. In particular, one should investigate its operating history, the presence of debts, litigation, and other legal risks.

3. Why is it important for the buyer to check the land under the property?

The need to check the land plot depends on how the buyer intends to use the acquired property. If the planned works after purchase include reconstruction that extends beyond the existing foundation, new construction after demolition, or any other use of the land plot, it is necessary to verify land rights and its designated use. An improper land designation can make the implementation of such a project impossible.

If the buyer does not plan to go beyond the existing built footprint — if, for example, they only intend to renovate interior spaces or add an additional floor — the status of the land may be less critical. At the same time, if the building’s intended use is to change, for example converting a hotel into a multi-apartment residential building, it is additionally necessary to check the land’s designated purpose, the master plan, and the zoning regulations to determine whether such use is permitted. Each property requires an individual analysis, since the list of necessary checks depends on the acquisition goals and the property’s future use.

4. What risks does a building on leased land pose?

If a building is located on leased land, the risks depend primarily on how the owner plans to use the property. If no reconstruction or new construction is planned, the main issue becomes securing the right to use the land plot and ensuring access to the building.

If the land plot is leased by a third party rather than owned by the municipality or the property owner, it is necessary to clarify in advance how access to the site will be arranged and what the rules of use are. This can affect the ability to fully operate the building.

If the property owner themselves leases the land from the local territorial community, after acquiring the property it is usually possible to transfer the lease rights to the new owner and continue to use the land lawfully.

5. Is it possible to buy a building but then be unable to reconstruct it?

The mere fact of purchasing a building does not mean the owner will be free to reconstruct it or change its use. This is especially true for buildings located in historic areas. Such buildings may be subject to numerous restrictions on reconstruction, façade alterations, adding floors, or reconfiguration. Due to legal requirements and the need to obtain numerous approvals, the owner may sometimes be limited to restoration or repair work without changing structural elements.

Before purchasing, it is necessary to check the title documents, any protection or restrictive agreements, the property’s location, urban-planning restrictions, and the requirements for the building’s use. Without such an analysis, a buyer may acquire real estate that cannot be reconstructed or used for the planned project.

6. Why is legal due diligence necessary before buying commercial property?

Legal due diligence is a comprehensive legal examination of a real estate asset that allows the buyer to obtain full information about potential risks before closing the deal.

During such a review, title documents, litigation, restrictions, permitting documentation, statutory requirements, and other factors that may affect the acquisition or subsequent use of the asset are analyzed. A detailed legal opinion is prepared on the basis of the findings, with references to statutory provisions, building regulations, and a description of all identified risks.

This document enables an investor or entrepreneur to assess the advisability of the purchase, calculate potential risks, and determine whether the planned business project can be implemented. Unlike an ordinary legal consultation, due diligence is a deeper analysis and is especially justified when acquiring expensive or complex commercial assets where the cost of a mistake can be very high.

Every commercial property has its own specifics, so there is no universal checklist. That is why a comprehensive legal analysis of the asset should be carried out before signing the contract. This makes it possible to identify risks in time, assess the prospects for implementing the business project, and make a well-considered investment decision.