By Michele D. Wenz, Partner at Brockstedt Mandalas Federico
Commercial real estate transactions are rarely simple. Even after a purchase and sale agreement is signed, some deals still fail to reach closing. This can be frustrating for both buyers and sellers, particularly after significant time, expense, and negotiation have already been invested.
In Delaware, that risk is often tied to a handful of recurring issues that we see in our practice that surface during due diligence or later in the transaction process. While each deal is unique, the same categories of problems tend to appear again and again, and when they are not identified early, they can ultimately derail the entire transaction. As you approach closing, consider these critical questions before you sign and face foreseeable problems.
Has Environmental Risk Been Fully Evaluated?
Environmental issues are another major source of breakdowns. Properties may carry risks related to soil or groundwater contamination, wetlands restrictions, stormwater compliance, or prior industrial or commercial uses. Even when a site appears clean on the surface, historical usage or nearby environmental conditions can create regulatory hurdles that affect development potential.
These issues can have a direct impact on both financing and valuation. Lenders may require additional testing, remediation, or insurance coverage before proceeding. In some cases, environmental concerns can eliminate financing eligibility altogether. When these risks are identified late in the process, they often force renegotiation or termination of the deal.
What Happens When Financing Falls Apart?
Financing is another critical point of failure, even for experienced buyers. Commercial lending is highly sensitive to market conditions, interest rate fluctuations, and underwriting standards. A property that initially qualifies for financing may later fail to meet revised lender requirements. Appraisal gaps can also create significant issues, particularly when market values shift during the transaction period.
In addition, many financing commitments are contingent on strict timelines and conditions. If those contingencies are not carefully structured in the purchase agreement, buyers may find themselves exposed if financing does not come through as expected. When that happens, the entire transaction can collapse, even if all other aspects of the deal are in place.
Were Title and Property Issues Identified Early Enough?
Commercial properties often come with complex legal histories that can materially affect their use and value. Easements, restrictive covenants, access agreements, and unresolved title issues all can limit what a buyer is able to do with the property. These issues are not always immediately apparent and may only surface during the title review process.
If they are not identified early, or if contractual deadlines for objections are missed, buyers may lose leverage to negotiate changes or demand resolution. This can result in a property that is legally owned but functionally constrained, limiting its long-term viability or profitability.
What This Means for Commercial Buyers and Sellers
Commercial real estate deals in Delaware almost never fail because of a single catastrophic issue. More often, they fall apart because multiple smaller risks were not identified early, not fully understood, or not clearly addressed in the governing agreement.
The most successful transactions are those where potential issues are anticipated at the outset, properly investigated during due diligence, and clearly addressed in the contract. This reduces uncertainty and helps prevent avoidable breakdowns later in the process.
At BMF, we work with clients throughout Delaware to structure and review commercial real estate transactions with these risks in mind. While it is not possible to plan for every contingency, addressing these major questions helps mitigate foreseeable problems. If you are involved in a commercial transaction, understanding where deals typically fall apart is one of the most effective ways to avoid becoming one of them. At BMF, we are available to discuss any questions as you navigate the process.
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