Due Diligence: For Commercial Property Acquisition

Minimising property investment risks.

Due Diligence

What is Due Diligence

Due diligence aims to assess the key issues that impact the value, use and redevelopment potential of the commercial property you seek to acquire. It also enables you to reach a Go or No-Go decision, price property risks into your purchase price and minimise the operational and financial risks downstream of your purchase.

You can phase the Due diligence process to minimise transaction risks and costs:

  • Pre-deal evaluation to confirm that the commercial property meets your acquisition criteria and estimate purchase value
  • Post-contract evaluation to analyse the commercial property in detail and confirm purchase value
  • Specialist Consultants reporting on particular due diligence elements

Issues identified through the due diligence process should be factored into the sale and purchase agreement to minimise your investment and operational risks in purchasing the commercial property.

Due Diligence Checklist

Due Diligence: Value

Location

Is the property well located? Likely to be in demand? Proximities?

How accessible is the property?

Building

What is the building quality/standard/functionality?

How leasable is the building?

How easy is would it be to resell the property?

Building Condition

Is there land or structural defects, e.g. sagging or subsidence?

Any deferred maintenance?

Is the building weathertight?

What is the earthquake seismic rating?

Seismic

Does the building or any neighbouring building have parapets or chimneys?

What is the building’s NBS% rating?

Comparable Sales Data

What are the yields and rates psm on sales of comparable properties?

Vendor

Who is the vendor? What are their motives and objectives for selling?

Does the vendor have the authority to sell?

Tenant

Who is the tenant?  Tenant history?

Are the vendor and tenant associated?

What guarantees or bonds are in place

Lease

What lease documentation is in place?

Who is the tenant?

Are there any guarantees or bonds associated with the property?

What rent review documentation is in place?

Chattels / Fit-out / Fixtures

What fit-out or fixtures does the landlord or tenant own?

What chattels does the landlord own?

Market Rental

How does the contract rent compare to the market rent?

Is the property over or under rented?  Any rental arrears?

Check building leasable area – is there a survey plan?

Rent Reviews

Are there pending rent reviews / conditions / incentives?

Operating Expenses

What operating expenses are payable, and by whom?

What sinking funds are there?

Insurability

Any issues that would impact obtaining replacement insurance?

Environmental

Is the property noted on any contaminated site register?

Any previous activities that could have caused contamination?

Any lead paint?

Subdivision / Redevelopment

What is the potential to subdivide the property?

What is the potential to redevelop the property?

Side Agreements

Any side agreements or other income streams?

Due Diligence: Legal & Regulatory

Title

Any title or survey plan issues?

Any encumbrances, notices or easements registered against the title?

Council

Any issues in the Land Information Memorandum, Project Information Memorandum or Neighbourhood Development Report?

Notices

Any outstanding Council requisitions or notifications?

Usage

Is the current use compliant with zoning and consents?

What are the current zoning rules?

Any Resource Consent usage restrictions?

Any Building Consent conditions?

Is there a code of compliance?

Is there a change of use that may trigger consent?

Do building area percentages comply with zoning and consent conditions?

Building Warrant of Fitness

Is a building WOF required? e.g. Smoke detectors, sprinklers, automatic doors that close on alarm, emergency warning and fire alarms or emergency lights

Occupational Health & Safety

Any OH&S issues and risks?

Roof access issues?

Areas

Do any of the building’s areas exceed zoning or consent constraints?

Asbestos

Is there any asbestos present at the property? If so, what is its state?

Due Diligence: Body Corporate

(Only applicable if the property is part of a unit title scheme)

Disclosure Statements

Any Disclosure Statement issues?

Records

Any issues arising from:

▪       Minutes of the Owners Committee, Annual General Meetings and any Extraordinary Meetings?

▪       Resolutions that have been passed in the last two to three years and whether these have been actioned?

▪       Financial Reports for the previous two to three years?

▪       Correspondence regarding ongoing and unresolved building issues?

Rules

Any Body Corporate Rules which constrain Usage, Signage or Operations?

Long-Term Maintenance Plans

Any long-term maintenance plans?

What budget is there for this work, and are there any details of a sinking fund?

Due Diligence: Operational

Flood Prone

Check Council records to see if the property is subject to flooding

Signage

Does the building signage comply with Council bylaws and Body Corporate Rules (if applicable)

Utilities

Does the property have sufficient gas supply, electrical capacity, and water supply to meet

intended use?

Mechanical & Electrical Condition

What is the state of the HVAC, electrical, fire, and security systems?

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Marcus Bosch

Marcus Bosch

Managing Director

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