What to know when you’re not actually buying the building

Sometimes people will choose to buy the owning entity of a property rather than the building itself. Buying the LLC that owns a building may seem functionally equivalent to purchasing the building, but consider these important differences.

Cornerstone Insight

Instead of getting a new property deed, which signifies ownership, some buyers will negotiate to buy the LLC (limited liability corporation) that owns the property.

Such transactions have obvious pitfalls that require additional due diligence. Since you don’t know how the previous owner managed the building over the years, you could have creditors coming after you for money and potential claims against the LLC or the property. Also, the sale of an LLC that owns real property has its own unique transfer tax consequences.

To protect yourself, title insurance is a must, as is a non-imputation affidavit, through which the previous owners certify disclosure of any known liens or defects.

If you have any questions about buying an LLC that owns a building, or if you would like to discuss an upcoming or prospective transaction, please contact us.