Lower Risk with Due Diligence
Due diligence is an important part of any major transaction and acquiring a commercial property is no exception.
It is not the responsibility of the seller to disclose any problems with the property, which means the risk rests squarely with the buyer. The maxim of 'caveat emptor' (let the buyer beware) is still a guiding legal principle in all property transactions, which means that the party acquiring the property must take reasonable steps to discover as much about the acquisition as possible before committing to the transaction.
Due Diligence is the process of systematic review, analysis and discovery in which a prospective purchaser gathers information about the property. The process is designed to identify any issues that may affect the property's capital value, income and long term performance. Asking for detailed information from the seller regarding its business operations and finances ensures you know what you are getting into and enables you to make an informed assessment of the risks associated with the transaction.
The complexity of the due diligence will depend on the type of property, location and size, but it is a time-consuming process that requires access to numerous documents. Getting the right professional advice at this stage in the process is advisable in order to help minimise your risk and avoid costly mistakes down the track.
Due diligence should investigate the physical condition of the property, such as the building structure and maintenance, as well as issues like financial resources, legal and tax planning. Start by putting together a checklist that includes documents to be examined like leases, title policy, certificate of occupancy, insurance policies, survey reports, licences, permits, construction/building/fire safety certificates, council development consents, hazardous materials register, depreciation schedule and outstanding orders.
These examples are a starting point only as a comprehensive due diligence checklist can easily number over 100 items! Each property is unique and the information required varies from property to property, so please contact your broker for assistance in putting together a checklist to suit your individual needs.