Austin TX Business Law Blog

Monday, September 26, 2016

Buyer Beware when Purchasing Property for a New Business

What surprises might await you when you purchase property for your new business?

A news story that appeared recently thanks to an anonymous whistleblower in Lubbock, reminds us all that buying a local business can be trickier than it first appears. This is why, no matter how savvy you think you are, you should always hire a skilled, knowledgeable business attorney before purchasing a business.

Case of Uncommon Building Codes

In the case mentioned, a local business owner approached KLBK and to disseminate a bit of information he or she found worthy of repeating. It concerns the peculiar building code bills the City of Lubbock has for new businesses.

According to the anonymous informer, when the commercial property was purchased and the permit submitted, one of the engineers responsible for the permit neglected to tell the new owner that something had to be done "with the water." Later on, the new owner received an email from a Lubbock chief engineer explaining that a fee would have to be paid to have a fire hydrant installed on the newly purchased property to comply with new 2014 building codes.

The business owner was flabbergasted to find that the new business would have to fund this public project on its own even though the fire hydrant would clearly be beneficial to the community as a whole. The owner asked if the fee could be paid partially, but this was not an option.

The "Logic" Behind the Rule

The City of Lubbock Director of Public Works, Wood Franklin, stated that the one who purchases the property purchases everything that goes along with it -- in this case, the requirement for a new fire hydrant. The last owner was not responsible for installing a new fire hydrant because that owner was abiding by previous building codes at the time of purchase. Franklin explains the implausible regulation this way, "You're the developer… you're taking vacant land, developing it, [and] improving it for financial gain … there are costs associated with that."

Unfortunately for the new owner, though not all fire hydrant installations are equally expensive, this one will cost $20,000. "If someone puts a building there, and there's a need for a fire hydrant, that's not the taxpayers responsibility," Franklin said. "Taxpayers didn't place that building there." Franklin adds that there may be other costs associated with buying property for a new business, such as bringing it up to code to meet utility, flooding and sewage requirements. Once the purchaser has brought the property up to recent code requirements, the City of Lubbock will do the maintenance.

This case should be viewed as a warning to all purchasers of new property on which to establish a new business. In addition to meeting other legal requirements, it is important that your attorney assist you in looking into specific, sometimes unusual, city or county ordinances that may increase your opening costs.

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