Monday, May 28, 2012

Beyond The Acquistion Cost - Due Diligence Review

Now that your planning issues are resolved, it’s time to evaluate the building/property on an overall basis. This is the part of the buying process which is typically referred to as the ‘Due Diligence’, and it allows you to investigate the property for problems that may be present or maybe uncovered after finalizing the purchase. The most common elements of a due diligence review can include the following areas:

Physical Condition – a review by a qualified building inspector or engineering consultant. This would be centered on the structural issues relating to the building, electrical/plumbing services, heating/cooling systems, interior finishes, and any other relevant site improvements (ie. parking lot). Costs to complete necessary building inspections can vary widely, depending on the scope of the review required, size of the building/property, and differences in the use of the property for your purposes. The goal should be to determine any and all deficiencies which you will assume, and to estimate those costs prior to finalizing a purchase agreement.

Environmental Review – this is a matter that varies based on jurisdiction, but for the most part is a requirement that most Buyers should conduct not only for themselves, but will be a requirement for mortgage purposes. This will involve a qualified environmental engineer and a written report outlining the findings of their review/investigation. The involvement of the engineer and costs for their engagement, will be purely dependent on the extent of environmental issues present. Again, understanding any related costs for environmental problems is critical to know at this point in the process.

Title Review – this is often best completed during the due diligence process, to ensure there are not title matters affecting the property which you are either unable or unwilling to accept. It should reveal any easements, property restrictions, and liens/encumbrances which affect the property and ultimately impact your use of it. Typically your lawyer will complete this as part of your purchase, but it may not always be done this early in the buying process, but it can be prudent to do so.

Other items that can be considered within a due diligence review might include:

• Building Code/Zoning Restrictions
• Heritage Designations & any Compliance Issues
• Building Equipment Review (ie. Cranes/Docks/O-H Doors)

Bottom-line -- you need to determine what the issues are relating to the property and what the associated costs are, prior to finalizing a purchase agreement.

Again, seek out experienced commercial realtors within your market and review a Due Diligence checklist, prior to finalizing a purchase.

No comments:

Post a Comment