Commercial real estate is so complex because there is no one set of laws or regulations that apply to every situation. Companies and individuals involved in commercial real estate transactions in Colorado could be subject to federal, state, and local real estate regulations, insurance laws, or contract laws. It is always advisable to consult an attorney with commercial real estate issues; these are some common areas of law that those involved in commercial real estate should be aware of.
Commercial Leasing Laws
Those involved in the leasing of commercial property, whether as the lessor or lessee, need to be familiar with the laws governing commercial property specifically, because they can vary greatly from residential tenancy laws.
In general, commercial tenants are afforded fewer protections than residential tenants, as commercial parties are assumed to be on a more equal playing field than residential landlords and tenants. For example, while Colorado’s Security Deposit Act (C.R.S. sections 38-12-101 through 104) proscribes where security deposits must be held for residential landlords, it does not apply to commercial leases. Similarly, C.R.S. sections 38-12-501 through 511 obligate residential landlords to maintain habitable premises, but this does not apply to commercial lessors.
In fact, Colorado law does not regulate most of the terms of a commercial lease. For instance, there are no laws restricting rent amounts, assignment or sublease, or maximum lease terms (although the courts have held that indefinite renewals were not enforceable).
That being said, one highly regulated area of the tenant/landlord relationship in Colorado is evictions. The same statute governs the involuntary termination of both residential and commercial leases (C.R.S. sections 13-40-101 et seq). Under this Colorado law, the only way for a landlord to terminate a lease is through a Forced Entry and Detainer action, which requires a court order for a tenant to leave the property. Before an eviction action can be filed, the landlord is required to give the tenant “Demand for Compliance of right to Possession,” which allows the tenant three days to either fix the lease violation or vacate the property. Self-help evictions are illegal, including locking a tenant out of the rental.
Real Estate Disclosure Laws
Unlike sellers of residential property, commercial property sellers do not have a duty to disclose any latent defects in their property. However, if sellers do make disclosures, they must be truthful, or the sellers could be liable or fraud under Colorado law. Commercial sellers are required to disclosure certain environmental hazards under federal law, including asbestos, lead, and Superfund sites.
Colorado Land Use Codes
It is particularly important for those involved in commercial real estate transactions to be familiar with Land Use Codes and zoning regulations. Land Use Codes are the regulations that govern how land in a certain area may be used. The codes include things like zoning, subdivision regulations, and impact fees. In Colorado, each county or municipality enacts its own land use code and governs how land may be used in its jurisdiction.
Contract Law for Commercial Real Estate
In general, real estate contracts are governed by Common Law, as opposed to the Universal Commercial Code. This means that in Colorado, the rules that apply to these types of sales and leasing contracts are found not in the state commercial code, but in other Colorado state laws, regulations, and court cases.
For instance, the legislature in Colorado created the Division of Real Estate under the Department of Regulatory Agencies to regulate real estate professionals. Under the regulations passed by this division, if a real estate broker is involved in a commercial real estate transaction (or any real estate transaction), the broker is required to use approved contracts and forms to complete the transaction. These mandatory forms included listing contracts, sales contracts, an addendum to contracts, disclosure documents, notice documents, counterproposal, agreements to amend/extend contract, closing forms, deeds of trust, and promissory notes. A licensed real estate attorney must prepare any addendum or non-approved form.
Any commercial real estate property, whether owned or leased, should be covered by insurance. As a result, it is important to understand the laws governing insurance in Colorado.
Most of Colorado’s insurance laws are found in the Colorado Revised Statutes under Title 10. Property insurance is covered under Article 4 and Title insurance is under Article 11.
Under Colorado law, it is not mandatory for a business to purchase Commercial Property Insurance to cover buildings and property that are owned or leased. However, Commercial Property and other types of coverage are generally required by the contract.
Commercial real estate transactions can be particularly complex. There are many aspects of local laws, state laws, municipal laws, and much more that can affect a transaction. The best way to avoid potential pitfalls and mistakes is to contact a real estate attorney that has a firm understanding of commercial real estate.
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