For many companies, a physical location is an integral part of the business. Whether your business owns or leases property to give customers a physical place to do business with you, or the business engages in buying, selling, and leasing property, working with real estate is a part of doing business. However, commercial real estate deals often come with disputes. Understanding what kinds of disputes you may face, how to avoid them, and how to resolve them can be critical to ensuring that your business thrives and does not end up bogged down in litigation or making a costly last-minute purchase or lease because a dispute leaves you with no other options. If you would like to learn more about buying, selling, or leasing real estate for commercial purposes, one of our experienced New Orleans, Louisiana real estate attorneys with Business Law Group may be able to answer your questions or offer guidance regarding specific plans or deals already in process. Call (504) 446-6506 to schedule an appointment and review your commercial property concerns. 

What Is Commercial Real Estate in Louisiana?

The Louisiana Small Business Development Center defines commercial real estate as any property that a business uses to support, expand, or grow that business. This includes land that will be used for commercial construction, retail locations, warehouses, shopping centers, office buildings, hotels, manufacturing facilities, apartment complexes that have at least four units, and commercial condos. 

Commercial property can be leased or purchased for use by the business. The business may also lease out commercial property that it owns as part of its business plan. For example, a business may rent a space in a retail plaza. Another business may own that retail plaza and rent the spaces to other businesses. Regardless of how the property is used or who is involved in the transaction, there is always the unfortunate possibility of a dispute arising.

What Kind of Disputes Might Arise in Commercial Real Estate?

Unlike residential real estate, commercial real estate has a high rate of disputes when deals are being made. Sometimes the disputes are between the parties involved in the transaction. Other times, an outside party may be involved in the dispute. Depending on the property and the details of the transaction, there may be more than one dispute for the same piece of property. 

Landlord-Tenant Disputes

When leasing commercial real estate, landlord-tenant disputes are common. These disputes can be about rent arrears (unpaid rent, rent paid late, rent not paid in full), repairs or maintenance, lease termination, subletting, property modifications or use, or lease interpretations. Because of the ongoing nature of leasing property, landlord-tenant disputes can arise during the process of negotiating or signing the lease or at any time during the lease term, as well as when the lease is being renewed. 

Boundary Disputes

Boundary disputes arise over property lines. When neighboring property owners or users disagree on the boundaries between two properties, these disputes come up. Most often, these disputes are specifically about the boundaries between two properties, with one party believing the property line is in one place and the other believing it is in another. This can be a matter of a few inches, a few feet, or a much larger difference. Other times, these disputes may be about other matters related to the property boundaries, such as erecting a building too close to the boundary or items crossing the boundary, such as one business being accused of storing items in a way that crosses the boundary or that their employees or customers are parking partially or completely on the other party's property. Like landlord-tenant disputes, boundary disputes can arise at any time, not just when the property is being sold or leased. 

Title Disputes

Every piece of real estate, whether commercial or residential, has a title. The title is what proves ownership of the property. Title disputes arise most often when ownership is in question. This may be because there are competing claims of ownership, illegal deeds, the seller is not the lawful owner, or unknown liens or encumbrances. Other reasons a title dispute might arise include title defects or failure to disclose. 

Title disputes may arise when the property is being sold. However, a title dispute can also put a commercial lease in doubt, as the lease may not be valid if it was not offered by the lawful owner of the property. In some cases, the business or their lender may be protected in these disputes by title insurance which the Louisiana Department of Insurance indicates most lenders will require. 

Construction Disputes

Commercial real estate can be the purchase or lease of an existing structure, but many businesses opt to purchase an empty piece of land and build the structures they desire. When they choose to do this, they open themselves to the possibility of construction disputes. Construction disputes may include project delays, cost overruns, design defects, or payment disputes. 

Easement Disputes

Easements exist for a variety of reasons: to provide access to landlocked property, to allow utilities to be installed, to preserve historic buildings, or to conserve and protect natural resources and wildlife habits are just a few. Easement disputes can be high value disputes, as some easements may negatively impact property rights, privacy, or property value. In commercial real estate, if the existence of an easement affects a development, it can be particularly problematic. 

Breach of Contract

Breaches of contracts occur when one or more parties to the contract fails to fulfill their obligations under that contract. This might include failing to pay funds, maintain the property, deliver the property as agreed, inability to transfer the title, financial difficulties, a buyer pulling back from the deal or a seller getting cold feet. These disputes may be remedied in many different ways, including canceling or rescinding the contract, terminating the contract, suing the breaching party for monetary damage, or other court remedies. 

Failure To Disclose Defects

There is a wide variety of defects that must be disclosed in commercial real estate. Some of the defects that are required to be disclosed include pest infestations, structural issues, mechanical issues, water damage, environmental hazards, underground storage tanks, and legal issues such as bankruptcy cases or liens against the property. Buyers may still be willing to purchase the property with these defects, but failure to disclose them can lead to disputes and buyers backing out of the sale. 

Other Disputes

There are a number of other disputes that may arise, including unclear or incomplete contract terms, negligence or misrepresentation, non-compliance with zoning or land-use regulations, unforeseen environmental issues, and misunderstandings between the parties. These disputes can be relatively simple and easy to resolve or they can be more difficult and time-consuming. In some cases, there may be no resolution to the dispute and the parties must simply decide whether or not to go forward with the transaction. 

Why Does Commercial Real Estate Present More Disputes Than Residential Real Estate?

Commercial real estate presents many more disputes than residential real estate. Residential real estate tends to be very straightforward: a landlord is renting a home for a tenant to live in or a seller is selling a home for the buyer to live in, lease to someone else, or sell to someone else. Commercial real estate is not as straightforward. Commercial property is typically used to create income, and with this comes higher stakes and more rules. 

There are often much larger amounts of money involved in commercial real estate. The financing is more restrictive and contracts are much more detailed. There may be more parties involved and fewer buyer protections, including a lawyer or real estate agent, even if the property is for sale by owner (FSBO). There are more documents and more nuanced details in these documents. All of these factors can combine to create numerous opportunities for misunderstandings, poor communication, forgotten details, or other circumstances that can lead to a dispute. 

Strategies for Resolving Disputes in Commercial Real Estate

Fortunately, there are several strategies that can be used to resolve commercial real estate disputes. Which strategy a business uses to resolve a dispute may depend on the type of dispute and the willingness of both parties to find a solution. 

Mediation

Mediation is cost-effective, confidential, and may be a quick way to resolve disputes. Mediation fosters relationship preservation, which can allow the parties to maintain ongoing connections and positive interactions. This can be crucial in commercial real estate, where the parties may need to work together again in the future. 

Mediation lets the parties retain control over the dispute-resolution process. The process allows both parties to make suggestions, tailor solutions to their specific needs, and reach a mutually beneficial decision while a third party mediates, or helps facilitate communication, in the process.

Arbitration

Arbitration is a process that blends mediation and litigation. In arbitration, both parties explain their perspective of the situation and a third party makes a final decision that is typically considered binding. Arbitration allows the parties to maintain some influence over the final decision, as they can offer suggestions and craft specific terms for the resolution of their dispute.

Arbitration is more efficient and provides a faster resolution than litigation, but also gives the parties certainty in the final decision and is less complex to understand and navigate than litigation. Arbitration also offers less opportunity for appeals, allowing the parties to move on more quickly once a decision is made. 

Negotiation 

Mediation and arbitration are more formal methods of resolving commercial real estate disputes. Negotiation is a less formal method, similar to mediation, that allows the parties to discuss and agree on a solution. Unlike arbitration and mediation, there is no third party involved in negotiation. 

Aside from being less formal, negotiation is also even more cost-effective than either mediation or arbitration. This process also allows the parties to adapt the process to their specific needs. 

Strategic Contract Review By an Attorney 

Some businesses have an attorney who reviews all their contracts, while others only hire an attorney to review a contract when there is a problem or they have questions. One way to resolve commercial real estate disputes is to have an attorney strategically review the contract. Contract review at strategic points, such as during the contract formation, can allow the parties to negotiate favorable terms, manage risks, and establish clear roles and responsibilities. 

Having the contract reviewed by an attorney can also highlight areas where disputes may arise before they do and allow the parties to alter the contract with terms that are less confusing or otherwise identify potential liabilities or risks and include safeguards against them. If you have a commercial real estate contract that you would like to have reviewed, one of Business Law Group's real estate attorneys may be able to assist you. 

Title Insurance

While title insurance will not necessarily prevent a commercial real estate dispute, it can help resolve some disputes that may arise. Title insurance can help avoid delays or additional costs by ensuring the title is free of issues that could delay the transaction and that the buyer will not face additional, unexpected, and unaffordable expenses if an issue does arise. 

Title insurance can also protect buyers against past events that may impact the current transaction, such as missing interests, boundary disputes, or forgeries. If the property's ownership is challenged, the underwriter of the title insurance company can handle the investigation so the buyer does not have to try to handle it themselves. 

Litigation 

As with many other types of disputes, another strategy to resolve commercial real estate disputes is litigation. One party can file a lawsuit and take the other party to court so that a judge can listen to both sides and make a decision for them. This decision is then put into a court order which both parties are required to abide by. 

Litigation is the most expensive strategy, which is why it is often recommended only as a last resort when other dispute resolution strategies have failed. In addition to the cost, litigation is also more time-consuming, with the trial potentially taking a day or two, and the judge's consideration period before making a decision, which may a few minutes, many hours, or several days. Finally, litigation begins with filing a lawsuit and may take weeks, months or even years before the case is heard in court. Even if a business is inclined to file a lawsuit, they may want to consider using one of the other strategies while they wait. 

Preventative Steps To Avoid Disputes

While having some strategies ready to resolve disputes is good, it is even better if businesses can take steps to avoid the disputes at all. There is no guarantee that all disputes can be avoided, but by implementing a few preventative steps, businesses can greatly reduce the risk of a dispute arising. 

Research the Property 

Researching a property and gathering relevant information about it before making a decision to move forward with a purchase or lease can prevent many disputes. Property research can ensure that the chosen property is properly zoned for the intended use, the property's financial performance, potential risks associated with the property, and existing tenants, including their financial status and lease terms. These details can help a business determine whether the property is worth pursuing or if another property may be a better option. 

Engage in Due Diligence

Due diligence is similar to research, except it is a deeper dive that is done after the decision is made to pursue a particular property. Due diligence allows a potential buyer or tenant to more thoroughly investigate and evaluate the property. The potential buyer or tenant is able to ensure there are no hidden liabilities or risks that were not visible in the initial research and confirm that the property meets their investment or business needs. Due diligence may include conducting surveys and inspections, as well as reviewing various documents, speaking with neighboring property owners or tenants, and other steps to vet the property. 

Ensure Clear Communication 

As with any contract or business deal, clear communication is key to reducing the risk of commercial real estate disputes. Both parties must be clear about the property's rules, regulations, defects, risks, and liabilities as well as the intended use to ensure that they are all in agreement about what will be happening if the transaction is completed. Both parties must be clear about their expectations, non-negotiable needs, and other details and ensure that these details are included in the contract. 

Document Everything

Along with clear communication, thorough documentation is also key to avoiding disputes. Both parties should keep notes and records of information regarding the property, details that have been discussed and agreed to or declined, and other information. Even details that seem small or insignificant should be documented as those small and insignificant details often may end up being at the center of a dispute later. 

Create Robust Contracts or Leases

Robust contracts or leases can significantly reduce the chances of a dispute arising. A robust contract or lease is drafted using precise terms to ensure that both parties are protected and understand exactly what the deal is that they are agreeing to. We strongly recommend using an attorney to draft contracts and leases to ensure there are no unintended loopholes, confusing clauses, or terms that might be ambiguous or allow a party to avoid fulfilling their obligations. We also recommend that each party to a contract have their own attorney who can review the contract and ensure that it is fair to all parties. 

Understand Contract or Lease Terms

Another preventative step that may help reduce disputes in commercial real estate is ensuring that the parties understand the contract or lease terms. This seems like an obvious step, but often, people will sign a contract because they understand most of the contract and assume that since they see no problems with what they do understand, the little they do not understand must also be fine. Instead, if a party does not understand any part of the contract or lease, they should ask the other party or an attorney for clarification. 

How a Louisiana Business Attorney May Assist You With Disputes

Whether you are leasing or buying a property to use as a location for your business, or buying a property to lease or sell to others as part of your business model, commercial properties and the contracts that go with their lease or purchase can be complex and confusing. Commercial real estate comes with an increased risk of disputes. Knowing the strategies available to resolve those disputes, as well as steps to take to avoid them, can make the process of selling, buying, or leasing commercial property smoother. If you are selling, buying, or leasing a commercial property and have gotten engaged in a dispute, or are worried that one may arise, consulting with a Louisiana real estate attorney at Business Law Group may offer legal advice or guidance in navigating the process more easily. Call (504) 446-6506 for an appointment to review your business property needs.