Due Diligence Facts in Commercial Real Estate Sales Today

Today we find that many contracts for the sale of a commercial property are subject to due diligence prior to settlement.  In that case the buyer of the property will have the facts of the property checked and reviewed to ensure that everything is in order.

The fact and event of due diligence should have been covered in your listing activity with the client.  They should have been told that the process is likely to occur between contract and settlement; on that basis they could have had time to deal with any outstanding issues and problems.

I like clients to be prepared when selling their property, and all hurdles or challenges to be minimised.  Given that you have done all the hard work as an agent in getting the property through the marketing phase, to inspections and the negotiation, you really do not want things ‘falling over’ in due diligence.

Now it should be said that you are not an ‘expert in everything’ when it comes to checking off the property facts, so if any doubt or challenges exist in the detail of a property, ask the client to bring in experts such as engineers, solicitors, and surveyors to help resolve the problems.  Make sure you do all of this before you take the property to the market.

Some of the things to check in preparing for due diligence and would include facts and details inside the main categories of:

  1. Lease documentation for all tenants and the terms and conditions of each occupancy.
  2. Tenant contact detail
  3. Property owner detail and legal  title
  4. Rental arrears, charging, invoicing, and accuracy to the lease documents.
  5. Property occupancy
  6. Tenant mix configurations
  7. Property usage and zoning
  8. History of occupancy
  9. Environmental and Heritage factors
  10. Orders, Notices, or Encumbrances and Rights of Way
  11. Relationships with neighbouring properties
  12. Income recovery
  13. Expenditure records for the current and previous years
  14. Outgoings analysis for the property today and the recoveries of outgoings that apply for each tenant.
  15. Budgets for Income and Expenditure
  16. Lease incentives
  17. Tenant negotiations
  18. Property boundaries
  19. Property site and access issues
  20. Development opportunities
  21. Structural concerns and factors
  22. Building approvals and codes
  23. Essential services
  24. Plant and equipment
  25. Maintenance activities and contractors
  26. Sales figures in a shopping centre
  27. Marketing budgets and processes in a shopping centre
  28. Renovation and refurbishment factors and requirements

So this is quite a comprehensive list.  Yet, it is only skimming the surface and some of these topics can be quite ‘deep’.   Ask the right questions at the time of property listing, and get in the experts to create the answers and check all the property detail before the property is taken to the market for sale.

Get more details on commercial real estate agent practice in our Newsletter right here.

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