Tennessee Realtor State Practice Exam

Why do residential and commercial real estate purchases in Tennessee use different contracts?

1. Because they have different tax implications

2. Because of the unique nature of commercial zoning

3. Because most commercial real estate involves a ground lease

4. Because of financing differences between the two types

The correct answer is: Because most commercial real estate involves a ground lease

The distinction in contracts for residential and commercial real estate purchases in Tennessee arises from the unique complexities involved in commercial transactions, one of which includes the prevalence of ground leases. Ground leases are long-term agreements in which a tenant is allowed to develop a property while paying rent to the landowner. This concept is more prevalent in commercial real estate compared to residential properties, which typically involve straightforward purchase agreements. Because commercial properties often come with additional considerations, such as development rights, business operations, zoning issues, and potential lease structures, the contracts must be tailored to address these complexities effectively. This necessitates different contractual agreements that account for the specific legal, financial, and operational requirements of commercial transactions, distinguishing them from residential purchases that follow a more standardized approach.