The stakes are higher
Commercial property transactions usually involve larger sums and greater complexity than residential purchases. The consequences of getting it wrong can be severe, from unexpected compliance costs to problematic lease arrangements.
Commercial assets are income-producing. If that income is at risk due to tenant issues, building defects, or compliance problems, your investment thesis falls apart.
What can go wrong
Without thorough due diligence, commercial property buyers can face serious problems:
What due diligence covers
Thorough due diligence for commercial property examines multiple dimensions:
Title, easements, covenants, resource consents, building consents
Building condition, seismic rating, asbestos, contamination
Lease terms, tenant covenant strength, rental history, arrears
Operating expenses, outgoings, body corporate levies, interest costs, etc.
The due diligence period
Most commercial contracts include a due diligence period, usually 10-20 working days, during which you can investigate the property and potentially cancel if you are not satisfied.
- Start immediately: The clock starts on agreement date, not when you get around to it
- Request everything: Leases, building reports, compliance certificates, outgoings schedules
- Engage experts early: Building inspectors, valuers, accountants all need time
What Carlile Dowling does
At this stage, we:
- • Review the agreement to identify due diligence period and conditions
- • Create a tailored investigation checklist based on the property type
- • Coordinate with your accountant, valuers, and other advisers
- • Identify priority items and manage the due diligence timeline
The cost of doing it properly vs the cost of problems
Thorough due diligence costs money. There are legal fees, sometimes specialist reports, search fees, and your time. But compare that to the cost of:
- • A building without Code Compliance Certificate requiring $200,000 in remedial work
- • A tenant who can't be removed despite not paying rent
- • An unexpected GST liability of tens of thousands at settlement
- • A property that can't be used for your intended purpose
Proper due diligence is an investment in certainty. It gives you the information to negotiate better terms, reduce your risk, or walk away if the issues are too significant.