Due Diligence Factors in a Commercial Real Estate Sale
The due diligence period in a commercial building sale is usually 45 to 60 days, during which the buyer and the broker work together to study the property. The factors to study include:
Building Inspection: Structural and mechanical components must be inspected to assess the property’s condition and compliance with code.
Property Use Study: The buyer and broker must ensure that local zoning ordinances permit the intended use of the property. Furthermore, they must verify that the buyer is able to obtain the necessary occupancy permits and building permits (if renovations are planned).
Environmental Inspection:
- Phase I – Historical evaluation and physical walkthrough of the property by a certified environmental expert.
- Phase II – If Phase I produces negative or questionable results, then Phase II is implemented and can include sampling of soil, ground water, asbestos-containing materials, etc… and other environmental testing.
- Phase III – Clean-up phase.
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Title Research: The buyer must inspect the title for liens, deed restrictions, easements, mineral rights, etc…
Property/Land Survey: Going beyond the title research, an American Land Title Association (ALTA) survey evaluates property lines, paving, curbing, parking, exterior building lines, fencing, utilities, landscaping, expandability, storm drainage, easements or encroachments etc…
Incentive Study: The buyer and broker should check for the availability of tax credits and other economic incentives.
Source: Smart Business, quoting Simon Caplan of Cresco Real Estate.
Last Updated on January 1, 2013 by Ramin Seddiq