You are probably familiar with doing your due diligence when buying a business or a new home, but what about when buying, or selling, commercial real estate? 

Due diligence is an important part of any real estate transaction. It is the process of doing your research and ensuring that all of the information you are taking into consideration is accurate and up-to-date.

For buyers and sellers, due diligence means different things, but it is the same basic process as any other type of investment. 

Let’s take a look into what you need to know about due diligence when it comes to buying and selling commercial real estate. 

Due Diligence for Vendors 

For vendors, there isn’t a lot of due diligence you need to do but there are a few things that can make the process easier for you. 

Talking to your bank (if you have a loan on the property), your solicitor and your accountant to find out what you’re liable for when the property sells should be your first port of call, before you even put the property on the market. You need to know if you will have fees or taxes to pay and take this into consideration when setting your desired sale price. 

You also need to know what information you may be required to provide to potential buyers in terms of contracts, financials, employment agreements and so on. Your accountant and solicitor will be able to help you prepare these items, and they should be done before you are asked for them. 

It is also a good idea to ensure that there is nothing that will stop your sale from going through – outstanding issues with council or insurers for example. 

Due Diligence for Purchasers 

For those looking to buy, the due diligence you need to do is a lot more in-depth. You will need to do your own investigations, including looking at financial statements, researching company history, and speaking with people who have knowledge about the company or product being considered (if you are buying the business). When just purchasing the property, you will need to consider rates, water costs, electricity costs, licensing and other fees. 

You will need to work with both your solicitor and accountant to find this information, and if utilising a loan to purchase, your bank will want certain pieces of information as well. If you are looking to buy, it is well worth having a solicitor, accountant and broker or banker ready to turn to – sometimes these deals can be time-dependent, and if it is the perfect property, you don’t want to miss out simply because you couldn’t find a solicitor. 

Due diligence, on both sides, also means staying up-to-date on market trends so you can make informed decisions about whether or not to buy or sell a commercial property. 

Documents You May Need

I mentioned documents you may need when selling or buying. The below documents are what you should expect will be included in the contract of sale:

  • a title search;
  • a common property title search (if applicable);
  • the deposited plan or strata plan;
  • all documents creating easements over the land (right of way etc.) and covenants;
  • a zoning certificate under s10.7 of the Environmental Planning and Assessment Act, 1979;
  • a drainage diagram showing where the main sewer lines are in relation to the land;
  • a sewer connection diagram
  • strata by-laws (if applicable); and
  • current lease, if the property is being sold ‘subject to existing tenancies’
  • strata report if part of a strata plan

For a buyer, you may also want to obtain a pest and building report. 

For sellers, the five most important documents that you will need to gather include:

  • Certificate of Title – shows information about the property held in the relevant state’s land register at the time the search was made. This will include the registered names and addresses of the property owner, any mortgage details and any encumbrances that affect the land. 
  • Property Plan – includes planning zone map, map overlays, bushfire zones and whether the property is in a sensitive area. 
  • Zoning Certificate –  meets your requirements of providing details of land zoning as well as any overlay controls or proposed amendments to the planning scheme. 
  • Investment Profit & Loss Statements – required if you rent your commercial property out. This statement has a summary of any revenue, costs and other expenses that have been incurred during a specific period – often the last financial year.
  • Lease Paperwork – If your property is tenanted, you will need to include a copy of the lease to the buyer as part of your contract. 

Buying and selling commercial real estate can be a stressful time – there is much that you need to consider, but if you have done your due diligence with your accountant and solicitor, you will have a much easier time going through the process.