An encumbrance is a catch-all term to describe a range of financial and non-financial claims on a property by parties other than the title holder. These encumbrances can prevent a property owner from exercising full and exclusive control over their property, and it’s helpful to know about any possible encumbrances prior to closing on a commercial property.
Examples Of Commercial Encumbrances
As we mentioned above, an encumbrance is a third party’s right or interest in a property that can be included on a deed or title. They can range in their abilities and may serve to increase or decrease the value or purchase price of a property, so it’s incredibly important you work with a title search company to understand what types of encumbrances you may run into now or in the future. Some of the most common commercial encumbrances include:
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Liens - A title search will reveal if there are any liens against the property that will need to be settled prior to closing.
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Deed Restrictions - A deed restriction limits how the new property can be used. For example, you may be restricted in developing certain protected environmental areas, or it may restrict what type of business can be conducted on the property.
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Easements - An easement is a type of agreement that determines who, when and why another party may access the property. For example, if you are purchasing commercial real estate in a shared commercial complex, an easement may explain how shared access to buildings, parking lots or driveways can commence.
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Encroachments - An encroachment is an unauthorized intrusion into your property. If the property you are purchasing encroaches on a neighbor’s property, or vice versa, due to something like a zoning issue or land erosion, knowing about existing encroachments is vital during the commercial purchase.
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Lease - If you are taking over a commercial property like an apartment complex or condominium, there’s a good chance that you will be assuming previously signed lease agreements, and they are a form of encumbrance because the purchaser will not be able to have complete and unrestricted use of the acquired property due to these tenant agreements.
When you’re making a major commercial real estate transaction, you want to do everything you can to avoid surprises or issues that could serve to negatively affect the value or your property, and the title search team at Commercial Partners can do just that by helping you realize any possible encumbrances well before you start negotiating a purchase price. Let us help you make everything with your latest commercial acquisition run smoothly from start to finish. For more information, or for assistance, give our team a call today at (612) 337-2470.