What Due Diligence You Need To Perform Before Buying Commercial Property

Due diligence is the process of getting as much information as possible concerning the commercial property you are looking at buying. Due diligence when dealing with commercial property has more components than when residential property is involved. Important components of the due diligence process should involve:

– applying for a building and/or pest report
– applying for a strata report (if applicable)
– reviewing the entire contract for the sale of the property thoroughly
– make any necessary enquiries with the banks, council, solicitors and other relevant parties

Due diligence is conducted after you have agreed in principle to the deal with the seller. It takes place before a binding contract is signed. The information you collect during the process is highly confidential and sensitive. The seller may require you sign a non-disclosure agreement before accessing the information.

Conducting due diligence ensures you understand the value of the property you are buying. You are also in a better position to assess the risks associated with the commercial property if any. This is important to avoid unpleasant surprises when the contract is sealed.

Through due diligence, you are able to thoroughly unearth all aspects of the commercial property for sale. This gives you the opportunity to look at the operations of the property, its financial performance, customer contracts, as well as legal and tax compliance. All these must be investigated in the time frame specified in the letter of intent.

Due diligence can also help you to identify your exposure to third parties in case the seller fails to comply with various legislation and requirements affecting the commercial property. These include contractual arrangements with existing tenants or leasers.

Due diligence can lead to the purchase price getting affirmed or renegotiated, better allocation of the purchase price or even additional covenants and conditions incorporated into the agreement. Due diligence therefore ensures you get the best value for your money and that you enter into a favourable contract. If the property does not meet your expectations, due diligence can result to opting out of the arrangement.

The main aim of due diligence is getting information about important aspects of the property to be bought. Through the process, the purchaser acquires greater certainty as to the future earnings and performance of the commercial property.

Because due diligence is such an important process, engage appropriate experts, accountants, financiers and lawyers among others to investigate the contracts, the financial statements as well as any other relevant information related to the commercial property under consideration.

Joe Gilles is an experienced and specialist commercial property lawyer who can help you with this process.

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