What you need to know before purchasing a commercial property

We recommend that the sale and purchase agreement includes a robust due diligence clause if you want an opportunity to fully investigate every aspect of the property before you commit yourself to the purchase. Ultimately you want to reserve an option to renegotiate or even cancel the agreement if your due diligence investigations uncover an insurmountable problem.

If Cavell Leitch is given an opportunity to review a purchase agreement before you sign it, we will be able to tailor a due diligence clause that suits your circumstances. It is important that the clause is broad enough to allow you to satisfy yourself as to any aspect of the potential purchase that you consider relevant.

The due diligence clause should give you enough time and scope to investigate any aspect of your property which you feel is relevant. You should be allowed access to the property, or to anyone who holds information about the property, to complete your investigations. Finally, the due diligence clause should require the vendor to supply you with any information you request within a reasonable timeframe.

How Cavell Leitch can assist you with your due diligence investigations:

Cavell Leitch has an in-depth knowledge of how the market operates. We can use that experience and expertise to guide you as to the pertinent questions which you should be answering to maximise your opportunities and minimise your risk.

What areas your due diligence investigations should cover will differ on a case-by-case basis based on your circumstances and experience, and the type of property you are looking to purchase.

Typically, however, we would help you investigate the following:

• The property's title to see what rights your property has/is subject to.
• The local Council's information on the property, the majority of which would be summarised in a LIM report.
• We will help you assess strength of any leases of the property. This could extend to performing credit checks on the tenants, and examining any service contracts currently in place to service the building or the tenancies.
• It may pay to obtain a building report to identify any current or future maintenance or safety issues.
• You may wish to have our help interpreting the relevant zoning rules so you can understand what type of activities are permitted on site.
• Your bank may require you to obtain specific valuation advice in relation to the property and any plant or equipment being sold as part of the purchase.
• It may be necessary to request copies of existing engineering, geotechnical or contamination reports for the property (or commission your own).
• We would always recommend that you seek accounting advice on the transaction, particularly as it relates to the purchase price allocation rules. Please refer to our separate article on the PPA rules.
  

Cavell Leitch provides wrap-around advice

Cavell Leitch will tailor our advice to suit you. We can prepare a full due diligence report which uses plain English to summarise each aspect of the property in as much detail as you require. Alternatively, if you are an experienced operator, you may prefer us to only highlight potential fishhooks and provide useful advice on their impact on you.

We are also able to provide expert advice on a number of areas. For example:

• If you are unsure whether would be able to operate your business from the site, then our resource management team can detail exactly what the property's zoning rules will and will not allow you to do.
• If your plans for the property include completing major building works, then Cavell Leitch can provide specialist construction and development specialist construction and development advice to steer you through the process.
• If you are purchasing the property with others, then Cavell's business, trusts or relationships teams can help you put a framework in place from the outset which sets out each parties' rights and responsibilities.
• If you are looking to take on key staff as part of the transaction, then our employment team can help you form those employment contracts, with support from our immigration team as needed.
• We can utilise our network of other professionals to put you in touch with whatever additional advice you may need. This might include specific engineering advice, valuation guidance, or financing, insurance, or property management assistance, etc.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.