Building Your Dream Office Text Size:

Whether it's a first home for your fledgling business or the "dream" factory or warehouse you've been planning for decades, there are some dangers to watch for when building a commercial building:

• Make sure the seller actually owns the property
• Check for restrictions. There may be ordinances that prohibit commercial usage or require buildings to be "set back" a certain distance from the edge of the lot.
• If you intend to operate a business from home, find out if there are any municipal or homeowner association rules.
• The lot may be subject to covenants that dictate the size and type of home that can be built.
• Is the lot served by utilities? If so, has the seller already paid for them, or are there pending assessments?
• Visualize the area surrounding the lot once the area is fully developed. Will it still be the right place for your business?

The Purchase Agreement

Building a custom building usually involves making separate contracts with an architect and a builder.

The builder and buyer enter into a contract detailing how, when and where the builder will build. Usually, the buyer purchases the lot and makes payments.

Regardless of the type of contract, a couple of long-standing legal doctrines come into play:

• Parol Evidence Rule: Unless fraud is involved - which is very difficult to prove - this rules invalidates any promises and representations the builder made before the contract was signed. All promises must be in the written contract to be enforceable.
• Statute of Frauds: This doctrine prohibits verbal modification of contracts involving real estate. Modifications to the contract must be in writing.

Choosing items like plumbing fixtures and carpet and dealing with details that regularly come up during construction can be very time consuming. Under the contract, a builder can charge the buyers repeatedly for any delays they cause.

If there are unresolved issues between you and the builder, money should be put into "escrow," a special account where the funds can be held until a specified event (such as landscaping) takes place.

Builder Responsibility

Although it varies from state to state, the responsibility of the builder for the buyer's problems can be summarized as follows:

• Warranty period: In most instances, the builder is obliged to deal with almost any problem not caused by buyer neglect for one year after closing. The one-year warranty is akin to "no fault" insurance.
• Statutory warranties: Some states have laws providing warranties on new building construction.
• Statutes of limitations: The buyer has a certain amount of time under state law to sue the builder for breach of contract and/or negligence.
• Statutes of repose: Many states have laws that extend a statute of limitations against a builder or design professional where the defects are hidden. To get this protection, an owner must act promptly once a defect is discovered.

Greg Bistram Greg Bistram is a real estate litigator in the St. Paul, Minnesota, law firm of Briggs and Morgan.

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