Purchasing a commercial property: technical due diligence

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Purchasing a commercial property can be a significant financial investment for a buyer. In order to protect his or her potential investment, a buyer should take steps to investigate the risks of acquiring a commercial property and how to reduce those risks where possible.

An important step is to gather as much information as possible about the physical condition and compliance of a property in a process known as technical due diligence.

There are a number of reasons why engaging an expert to undertake technical due diligence of a commercial property is a good idea. The objective of technical due diligence is to carry out investigations about the physical condition of a building and available documentation to alert a buyer to any issues with the property.

Technical due diligence might identify such things as latent defects, environmental risks and/or necessary capital expenditure.

Any information about the property, which arises out of the due diligence process, might enable the buyer to cancel the contract of sale or seek to re-negotiate a price reduction with the seller. In this way, technical due diligence allows a buyer to mitigate his or her risk associated with the purchase of a commercial property.

Technical due diligence is typically undertaken by specialist consultants, such as a quantity surveyor, and generally takes between 2-3 weeks. The process can be as comprehensive or limited as a buyer requires, but would normally include the following searches and investigations:

  • Building structure and fabric;
  • Building services;
  • Regulatory;
  • Environmental;
  • Depreciation; and
  • Capital expenditure.

The importance of carrying out a thorough legal and technical due diligence process when considering purchasing a commercial property and prior to signing a contract should not be underestimated and should be undertaken with the assistance of specialist consultants experienced in the process.

Tim Hayter, Principal, Mid West Lawyers

This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances.