This article looks at what is involved in due diligence for a commercial building and why it’s such a good idea.
When buying a commercial property, make the agreement subject to a ‘due diligence’ clause so you don’t have to go ahead if you find a problem.
The Big Twelve
- Check that all uses, current and future are allowed under your local District Plan.
- Understand all relevant building and utilities (e.g. electrical) requirements.
- Ensure that every building or addition has consent.
- If your building has sprinklers, automatic doors that close on alarm, emergency warning and fire alarms or emergency lights, you will be required to have or provide a Building Warrant of Fitness (BWOF) annually www.building.govt.nz/managing-buildings/managing-your-bwof. Check the latest BWOF for any issues.
- If there is or may be a ‘change of use’ for the building, understand what extra costs this may involve to satisfy the current Building Code.
- Get a report from the agent to confirm what actual rent has been paid. Check there is nothing to indicate the tenant may struggle to pay the rent (such as recent rent concessions).
- Get a valuation from a valuer who is experienced in commercial valuation.
- Check if your insurer has any issues with the property – particularly if the building is old. Your insurer can be a valuable double check.
- Seismic issues can be a real problem with older buildings. Check that there are no issues using an earthquake assessor, if required.
- Ask your surveyor to check there are no encroachments onto a neighbouring property particularly if the building you are buying is an old one.
- Check everything on the title that may affect the building or the use of it. Make sure you understand who maintains easements. For example: how can you deal with illegal parking by, for example, other adjoining properties?
- For a large purchase, an environmental report may be required – refer to HAIL requirements www.mfe.govt.nz/land/risks-contaminated-land/my-land-contaminated/hazardous-activities-and-industries-list-hail
These are only some of the issues that may be appropriate to check, if you would like some advice as to what else to look for, please contact one of our lawyers in our Property Team.