Due Diligence Facts in Commercial Real Estate Sales Today
Today, we find that many contracts for the sale of commercial property are subject to due diligence before settlement. In that case, the buyer will have the facts of the property checked and reviewed to ensure that everything is in order.
Your listing activity with the client should have covered the facts, events, and questions that impact due diligence. Tell the clients that the due diligence process will likely occur between the contract and settlement so they can have time to address any outstanding issues and problems.
I like clients to be prepared when selling their property and minimise any hurdles or challenges. Given that you have done all the hard work as an agent in getting the property through the marketing phase, inspections, and negotiation, you really do not want things ‘falling over’ in due diligence.
Property Facts and Questions
Now, it should be said that you are not an ‘expert in everything’ when it comes to checking off the property facts. If any doubts or challenges exist in the details of a property that you are selling, ask the client to bring in experts such as engineers, solicitors, and surveyors to help resolve the problems. Ensure you do all this before you take the property to the market.
Due Diligence Review in Commercial Property
Some of the things to check in preparing for due diligence would include facts and details inside and across the main categories of:
- Lease documentation for all tenants and the terms and conditions of each occupancy.
- Tenant contact detail
- Property owner detail and legal title
- Rental arrears, charging, invoicing, and accuracy to the lease documents.
- Property occupancy
- Tenant mix configurations
- Property usage and zoning
- History of occupancy
- Environmental and Heritage factors
- Orders, Notices, or Encumbrances and Rights of Way
- Relationships with neighbouring properties
- Income recovery
- Expenditure records for the current and previous years
- Outgoings analysis for the property today and the recoveries of outgoings that apply to each tenant.
- Budgets for Income and Expenditure
- Lease incentives
- Tenant negotiations
- Property boundaries
- Property site and access issues
- Development opportunities
- Structural concerns and factors
- Building approvals and codes
- Essential services
- Plant and equipment
- Maintenance activities and contractors
- Sales figures in a shopping centre
- Marketing budgets and processes in a shopping centre
- Renovation and refurbishment factors and requirements
So, this is quite a comprehensive due diligence list, and you can add to it based on the property, the location, and the client. Yet, it is only skimming the surface, and some of these topics can be quite ‘deep’.
You want a property transaction to process with minimal issues and hurdles. Ask the right questions at the time of property listing, get the experts to create the answers, and check all the property details before the property is taken to the market for sale.
