Mergers and acquisitions (M&A) involve far more than just financial negotiations and corporate restructuring. One of the most crucial yet often underestimated components in these transactions is corporate real estate law. Real estate holdings can significantly impact the valuation, operational efficiency, and legal risk profile of a transaction. For business owners and investors, understanding the role of corporate real estate law in M&A is essential to mitigating risk and maximizing opportunity.

Why Real Estate Matters in M&A

Real estate can represent a substantial portion of a company’s assets. In industries such as manufacturing, logistics, hospitality, and retail, the value and location of real property holdings often play a pivotal role in determining the desirability of a deal. Whether a company owns or leases property, the terms of these agreements must be carefully analyzed during an M&A transaction.

Poor due diligence on real estate can lead to unexpected liabilities, zoning issues, or hidden environmental problems—all of which could derail a deal or cause complications post-closing.

Key Legal Considerations

1. Title and Ownership Verification

One of the first legal steps in any M&A transaction involving real property is verifying that the selling entity has clear and marketable title. This involves reviewing deeds, title insurance policies, and any encumbrances such as easements, liens, or covenants. A legal professional ensures that ownership rights can be transferred without legal entanglements.

2. Lease Agreements and Obligations

If the target company leases its properties, lease agreements must be reviewed in detail. Key concerns include:

• Assignability clauses: Can the lease be transferred to a new owner without landlord approval?
  
  
• Term and renewal options: How much longer is the lease in effect, and under what terms?
  
  
• Rent escalation clauses and obligations for maintenance or repairs.
  
  

Failure to assess lease obligations can result in disputes or operational limitations for the acquiring company.

3. Zoning and Land Use Compliance

Real estate counsel must ensure that the properties comply with current zoning regulations and that the business activities conducted on the property are lawful. A change in ownership may trigger compliance reviews or re-permitting requirements, especially in jurisdictions like Los Angeles, where zoning laws can be complex.

4. Environmental Assessments

Environmental liability can carry significant consequences. Phase I and, if needed, Phase II environmental site assessments (ESAs) are crucial to ensure the property is free from contamination or hazardous materials. These evaluations are not just due diligence—they’re often legally required for financing or insurance purposes.

Real Estate Transfer Strategies

In some M&A transactions, companies opt to exclude real estate from the sale and instead lease it back from the original owner. This is known as a sale-leaseback arrangement and may be advantageous in freeing up capital while still retaining operational control over the property.

Alternatively, the acquiring company may require the transfer of all real estate assets as part of the deal, which may involve complex escrow procedures, regulatory filings, and title updates. In either case, real estate attorneys help structure the transaction to avoid unintended tax consequences and ensure regulatory compliance.

Regulatory and Tax Implications

Real estate transfers in M&A deals often trigger tax implications, including transfer taxes, capital gains taxes, and property reassessments. California, in particular, has specific rules that can lead to significant tax liabilities if not properly planned. Attorneys with expertise in corporate real estate law can structure deals to minimize tax exposure through entity structuring, use of exemptions, or installment strategies.

The Role of Legal Counsel

Legal professionals play a critical role in protecting clients from risk during M&A deals. They conduct due diligence, draft and review contracts, identify red flags, and advise on negotiation tactics. At JH Legal Helper, our attorneys understand both the transactional and regulatory aspects of corporate real estate law, providing clients with a holistic legal approach.

Don’t Overlook the Real Estate Component

Whether you’re buying or selling a business, real estate should never be an afterthought in the M&A process. The consequences of overlooking property-related issues can be costly and time-consuming. With expert legal guidance, companies can confidently navigate real estate complexities and complete deals with clarity and security.

If your business is planning a merger or acquisition, schedule a consultation with JH Legal Helper. Our experienced team is ready to help you uncover and manage every legal detail to protect your investment and achieve your goals.

‍