What Are the Most Common Types of Commercial Construction Contracts?

Illinois commercial real estate lawyer, IL real estate attorney, A commercial real estate development project will often represent a lucrative business opportunity for all parties involved. However, significant construction may be needed before a developer can realize the full potential of a property. Whether a new building will need to be built, an existing building will need to be refurbished, or other types of construction will be needed to ensure that a property will be able to serve its purpose, these construction projects can represent a major investment of time and money. To ensure that work will be completed properly, a construction contract will be needed, and the right type of contract should be selected based on the work being done.

Four Types of Construction Contracts

When parties sign a contract, they are making a legal agreement, and they will both be required to meet their contractual obligations. A contract should fully outline the scope of the work being performed and the responsibilities of each party. It should state the price of the project and how this amount may change if unforeseen circumstances occur, and it should detail a payment schedule and the penalties for late payments. Any relevant documents, such as blueprints and specifications, should be included in a contract.

Depending on the needs of the project, a contract will typically fall into one of the following categories:

  • Lump-sum/fixed price – A contract may specify the total amount that will be paid to a contractor for all of the work performed during a construction project. This amount is usually based on the contractor’s estimate of the costs of work performed, along with a markup that will allow them to earn a profit. Since these contracts are not very flexible, they are usually used in projects that involve easily-defined work with a set schedule and little chance of changes.
  • Time and materials – In this type of contract, a builder will be paid on a regular basis (usually daily or weekly) for the costs of materials and labor. These contracts are more flexible, and they are usually used in situations where the full scope of a project has not yet been defined.
  • Cost-plus – A contract may specify that a builder will be paid based on the actual costs of completing a project. The builder will be reimbursed for expenses such as materials and labor, and they will also receive an additional amount, which may be a fixed fee or a percentage of the total costs. These contracts allow for flexibility while a project is ongoing, and they may protect the property owner’s interests by specifying a maximum price that will be paid.
  • Unit pricing – For smaller projects or those which require detailed accounting, a contract may specify the exact costs involved for all materials and tasks. These contracts can ensure that a property owner knows exactly how money is being spent, and they allow for easy adjustment to a project’s total price if changes are needed. However, unit pricing contracts can be time-consuming to create, since they are very detailed.

Contact Our DuPage County Commercial Real Estate Attorneys

At Stock, Carlson & Duff, LLC, our attorneys are highly experienced in construction contracts and other commercial real estate concerns. Whether you are a developer or a builder, we can help you draft a contract that will meet your needs, and we can work with you to resolve any contract disputes either inside or outside the courtroom. Contact our Wheaton construction contract lawyers today at 630-665-2500.

Sources:

https://www.thebalancesmb.com/common-types-of-construction-contracts-844483

https://www.stovallconstructioninc.com/news/types-commercial-construction-contracts/

How Are Commercial Real Estate Properties Valued?

IL real estate lawyer, Illinois real estate attorneyThe decision to buy or sell a commercial property is likely one of the most consequential financial decisions you will ever make. In order to get the best deal possible, proper valuation of the property is essential. An accurate appraisal of a property’s value is also used by lenders when determining how much debt the lender is willing to provide. There are several different approaches used to value commercial real estate properties.

Valuation Methods for Commercial Real Estate

Many people assume that the term “value” is synonymous with “price” or “cost.” Price and cost will certainly influence a property’s value, but they are not interchangeable terms. The value of a commercial property is typically determined by an appraiser. The three main methods for valuing a commercial property include the income approach, replacement cost approach, and market value approach. The valuation approach an appraiser will use depends on several factors including the type of property and how the property will be utilized.

  • Income Approach: An income approach or income capitalization approach is the most popular way to value commercial properties that produce income such as retail stores, office buildings, and apartment complexes. The appraiser will first estimate the property’s potential gross income and then deduct operating expenses to determine the property’s net operating income. Next, the capitalization rate or “cap rate” is used to estimate the price that the average investor would pay for the income produced by the property. The cap rate is then applied to the net operating income to determine the value of the property.
  • Replacement Cost Approach: The cost approach is much more involved than the income approach. This valuation approach considers the value of the land on which the property exists and then adds the estimated cost of constructing an exact copy of the property. Put another way, the cost approach calculates a property’s value by determining how much it would cost to completely rebuild the property and then adding this cost to the current value of the land. This approach is often used to value properties that do not generate income such as churches, schools, and hospitals.
  • Market Value Approach: The market value approach or sales comparison approach is often used to value residential properties but it may also apply to commercial properties. The value of the commercial property is estimated by comparing the property to similar properties that have recently been sold or are currently for sale. If there are no similar properties in the market area, this approach may not be effective.

Contact a DuPage County Real Estate Lawyer

Proper valuation is crucial when buying or selling commercial real estate property. At Stock, Carlson & Duff LLC, we work with a trusted group of appraisers to ensure our clients receive accurate valuations. Call our office at 630-665-2500 for a confidential consultation with a skilled Wheaton real estate attorney.

Sources:

https://www.investopedia.com/articles/realestate/12/real-estate-valuation.asp
https://homeguides.sfgate.com/three-methods-appraising-commercial-real-estate-value-1567.html

Five Important Duties of a Commercial Landlord

leasing, Wheaton commercial real estate attorneysWhen you own and lease out commercial property, such a venture could be extremely profitable. However, you could also face serious risks, especially if you are not properly prepared to handle the responsibilities associated with being a commercial landlord. Some of these risks include the possibility of financial loss or being sued for failing to meet your obligations as the property owner. It is important to understand what these responsibilities are and how to fulfill them. A qualified commercial leasing attorney can help.

Duty #1: Comply With All Applicable Laws

There many different federal, state, and local laws that apply to all property owners who rent out their properties, including commercial landlords. For example, as a commercial landlord, you are not permitted to discriminate against would-be tenants on the basis of certain criteria, including religion, race, and national origin. You must also follow all zoning laws and building codes. If you fail to comply with any applicable law, you could face serious consequences, including legal action.

Duty #2: Use Clear Language in Your Contracts

If your lease agreements are not clear and concise, your tenants might not understand what is expected of them. Your contracts could also be more difficult to enforce if there is confusion about what they contain. Commercial leasing contracts should clearly address all of the relevant concerns, including matters of rent, repairs, alterations to the property, and communication expectations.

Duty #3: Keep Your End of the Agreement

In addition to using clear language, your leasing contracts should only include provisions that you are willing and able to meet. You should also familiarize yourself with your responsibilities for making certain types of repairs, such as those involving heating and cooling systems, electrical work, and plumbing. This can help ensure that the property is maintained properly and in accordance with applicable laws.

Duty #4: Mitigate Risks and Limit Liability

Proper maintenance will go a long way toward protecting yourself and your property. However, limiting risk means more than fixing a broken water heater. You might also consider installing a security system, additional lighting, or doors and windows that can be locked securely. It is also a good idea to identify and address potential environmental hazards, such as uneven walkways where water could pool or roof overhangs from which snow or ice could fall.

Duty #5: Be Fully Insured

Despite taking all the precautions in the world, you could still suffer losses due to fires, floods, falling trees, or other “acts of God.” Comprehensive insurance coverage is a good way to protect yourself and your property. Similarly, you should also carry insurance policies on any vehicles or equipment that you may own and use in connection with leasing the property.

Call a DuPage County Commercial Real Estate Attorney

At Stock, Carlson & Duff LLC, our team is dedicated to helping commercial landlords maximize the return on their real estate investments. Our experienced Wheaton commercial leasing lawyers can guide you through the entire leasing process and will assist you in managing any issues that may arise. Call 630-665-2500 to schedule a confidential consultation today.

 

Sources:

https://smallbusiness.chron.com/business-tenants-rights-67257.html

https://www.businessnewsdaily.com/15101-commercial-lease-guide.html