obtaining a Commercial Property with a sibling

6 Replies

I own a Commercial Property with my sibling. We will be 50/50 partners. My sibling owns a separate business that I am not involved in. That business has rented within the building, we now own together, for the last 20 years. Including my siblings business, there are 8 business renting within the complex. I have two questions:

What should be in our Operating Agreement (partnership)

How much, if any, should my siblings rent be now that she owns 1/2 the building

Your lawyer should be able to help with all of this. Given the size of your building, I would not expect anything less.

If you need a referral in MO, I am happy to help.

To keep it cleanest, I would think your sibling should pay market rent for the separate business space and they get their share of the profits from the building as a whole per your agreement.  Anything else leaves room for bad feelings that someone is getting taken advantage of.

Hi Tim,

Your sibling should be paying market rent.  This still benefits your sibling because it helps keep the value of the building where it should be.  Also, your sibling still effectively gets a discount since 50% of it goes to paying him/herself.

In regards to what should be in the operating agreement, the attorney who drafts it for you would be in the best position to answer that.  My main advice is to not use something like legalzoom.  There is a time and place to use services like that, but I don't think drafting operating agreements is it since it should be personalized to you and your situation.

There are a few things that I think should be in the operating agreement:

1) How do you determine how much to take out in distributions?  Do you both have to agree?

2) How do you determine when more money needs to be put into the real estate business?  What happens if one of you can't/wont pay?

3) What happens if one of you wants to leave the business (or due to a life situation has to leave)?  Can their share be sold to anyone, or does it have to be sold to the other sibling?  If to the other sibling, how do you determine a fair purchase price and payment terms? 

@Tim Vallee I am not an attorney but if I were you I would create an LLC for ownership of the real estate that has nothing to do with who leases it. You and your sibling would own 50% of the shares of that LLC. Then sign leases for each of the spaces with the LLC and the tenants. One of which would happen to be a separate LLC your sibling may own 100% or some portion of.

The terms of that lease should be the same or similar market rates/terms that other tenants sign. 

Also, I would recommend you find a good local attorney and CPA to talk about the details of how you do this in detail. There are a lot of considerations that will make a big difference to both your rental business and your sibling's operational business.

Hello, 

Thank you all for your responses. We already have an Attorney in place, but I seem to be the only one concerned about how things should be written up or addressed. I will make sure everything is spelled out in the Operating Agreement. The Attorney seems fine leaving the old Operating Agreement in place which didn't mention my sister or I at all. Seems crazy to me. I need to find a CPA both of us agree on to run the LLC through.

WHO is this attorney??

Are they a specialist in commercial real estate or a generalist doing many things but master of none?

Make sure the attorney can be impartial and help everyone reach an agreement that works well. If this is an attorney that handles a lot of your brothers business already he might not be able to be impartial.

This is a big decision so at a minimum you might want another attorney do a review of the agreement with you on a phone call.

Just because family is involved do not assume everything will be fair etc.

No legal advice given.