Commercial real estate investments can generate income through rent, appreciation, and long-term asset value. Yet property ownership can also bring disagreements involving maintenance, property access, restrictions, neighboring properties, management responsibilities, and community rules. A dispute that appears relatively small at first can create financial and operational problems if it remains unresolved.
For investors, understanding how these conflicts can affect an investment is an important part of property management. It also helps to know what steps to take when another party’s actions interfere with the property’s use, maintenance, or value.
Common Types of Property Disputes
Property disputes can arise from many different circumstances. Commercial investors may encounter disagreements with tenants, contractors, neighboring property owners, property managers, local authorities, or associations that govern a property.
Take, for example, boundary disputes, one of the most common and longstanding issues in real estate. They arise when neighboring property owners each claim the same strip of land. In such cases, working with a licensed surveyor is an effective first step in determining the correct property line.
For commercial properties, an unresolved boundary issue can delay planned expansion projects. It may also create financing challenges because lenders typically require clear and verified property boundaries before approving loans.
Some disputes involve maintenance responsibilities or property damage. Others may concern access rights, parking, construction work, property boundaries, or restrictions on how a property can be used. The terms of purchase agreements, leases, covenants, and other legal documents can play an important role in determining each party’s responsibilities.
When Association Rules Affect an Investment Property
Investors who own property within a community governed by a homeowners association (HOA) should review the applicable rules before making major investment decisions. According to the National Association of Realtors, roughly 30% of U.S. housing is governed by an association.
These associations establish requirements covering property maintenance, fees, and the use of shared amenities. Restrictions may affect renovations, leasing arrangements, exterior improvements, parking, business activities, and other aspects of property use.
This is also where investors may encounter questions that are relevant to residential properties. For example, someone dealing with a serious disagreement may ask, can I sue my HOA if it has allegedly violated an agreement?
According to Condominium Associates, you can because it is your right. However, whether HOA members are individually liable could vary from state to state. Investors should also consider how the dispute could affect the property’s income, expenses, marketability, and long-term investment strategy.
Why Property Disputes Can Become Expensive
Resolving a property dispute can be costly, particularly when it requires assistance from a specialized attorney. Real estate attorneys in the U.S. earn an average annual salary of over $120,000. This comes down to around $36.75 an hour.
Legal fees can be even higher in major metropolitan areas where commercial real estate matters tend to be more complex. A dispute that drags on for months can result in substantial attorney fees before the parties reach a resolution.
“Property disputes introduce urgency that most commercial contract disputes simply do not,” Davidovich Stone says. “When ownership, possession, regulatory compliance, and financial obligations are all at stake at the same time, escalation happens quickly.”
A property dispute can affect more than an investor’s legal expenses. If a disagreement prevents an investor from using or modifying a property as planned, the investment may generate less income than expected.
Review Property Documents Before Investing
Many property disputes can become more complicated when an investor does not know which documents govern the property. Reviewing these materials before purchasing an investment can help identify restrictions that could affect the property’s intended use.
Depending on the property, relevant documents may include:
- Purchase agreements
- Deeds and title documents
- Lease agreements
- Property management contracts
- Community association documents
- Covenants and restrictions
- Easements
- Maintenance agreements
- Insurance policies
- Local zoning requirements
A title deed, for example, can derail a deal before it closes. This can cause challenges when you want to sell the property to realize a profit on your investment. According to Investopedia, the type of deed involved determines the level of protection available to the buyer.
A general warranty deed provides the buyer with the highest level of protection against undisclosed claims on the property. In contrast, a quitclaim deed provides no guarantees against existing or hidden claims. Commercial property buyers should verify the specific type of deed involved before finalizing the transaction.
Frequently Asked Questions
What should investors look for during commercial property due diligence?
Investors should review the property’s title, zoning requirements, easements, surveys, leases, environmental reports, insurance policies, and applicable restrictions. Checking these records before closing can reveal potential conflicts that may affect the property’s use or value. Legal and real estate professionals can also help identify issues that may not be obvious from a property inspection alone.
Can a property dispute affect the sale of a commercial property?
Yes, an unresolved dispute can make a commercial property harder to sell. Potential buyers may hesitate if they believe the issue could create future expenses or limit the property’s use. Lenders and title companies may also request additional documentation before proceeding. Depending on the dispute, resolving the matter before listing the property may make the transaction easier.
Can a property dispute affect commercial property taxes?
A dispute does not automatically change a property’s tax obligations, but certain conflicts can affect its assessed value or taxable status. For example, restrictions on property use or access problems could influence how the property is valued. Investors should speak with a qualified tax professional or local assessor to understand whether a particular dispute has tax implications.
Key Stats and Facts About Commercial Property Disputes
|
Share of U.S. housing governed by an association, according to the National Association of Realtors |
Approximately 30% |
|
Average annual salary stated for real estate attorneys in the U.S. |
$120,000+ |
|
Deed types |
General warranty deeds offer stronger buyer protection, while quitclaim deeds provide no guarantees against hidden claims |
|
Length of a prolonged property dispute can take before reaching a resolution |
Months |
|
Disputes can affect property use, financing, income, renovations, and marketability |
Multiple risk areas |
Property disputes can affect commercial real estate investments in several ways, from unexpected legal expenses to delayed renovations. Understanding the property’s governing documents and maintaining clear records can help investors respond more effectively when disagreements arise.
A thoughtful approach also means considering negotiation and other resolution methods before moving toward litigation. For investors, protecting an asset involves more than calculating its purchase price and expected returns. Legal and operational risks can also influence whether a property remains a sound long-term investment.
