In an earlier post, we discussed what due diligence is and just what makes it so important for a commercial real estate buyer or renter.
No matter if you’re looking for an office for rent or a warehouse to buy, due diligence should be a step you take with great care. That’s why we’ve prepared a short list of items to never skip while doing it. This list is not meant to be exhaustive, by any means, and may not apply to every business in every industry, but it should be a great place to get started.
So, when you’re checking out your future business spot, make sure you’ve thoroughly investigated the following items:
- Legal ownership and ability to pass title. You don’t have to own a property to list it for sale or rent—and although it’s rare that a stranger will place a property they have no claim to on the market, family members tied up in complicated court battles may. This is why it’s so important to have an abstract or title company handle your title search to ensure the title will come back clean. A lien, a property still in probate court or any number of other ownership issues can be avoided by having someone check the title for you.
- Land covenants and title restrictions. In addition to finding potential legal owners who might not want to sell or reasons why a seller can’t sell a property, a title or abstract company can also provide you with a copy of the land covenants and any title restrictions tied to the property you’re interested in occupying. This is vital for any business because title restrictions can literally specify what types of companies can occupy the site—and any found in violation immediately forfeit their legal right to ownership in many states.
- Zoning and licensing. You know your business has to fit the zoning requirements of the building you’re in, so make sure to check that out before signing. While you’re at it, make sure you can get any licensing you may need, such as a liquor license, in the area. Sometimes cities or zones will have special restrictions on licensing and you should be aware of that before moving in.
- Other use restrictions. Any number of other use restriction uses could exist on the property you’re eyeing, so make sure to ask detailed questions and hire experts to help you get to the bottom of this information. For example, you might not be able to have a sidewalk cafe in a particular location or place an awning in a certain spot—and sometimes that actually matters a lot.
- Environmental contamination. If the site seems to check out for zoning and use, it’s important to also make sure that you’re not going to be responsible for any sort of clean-up operation. It may sound like something that never happens, but there are lots of very dirty things underground that have lingered.Petroleum brownfields, for example, are a big problem for people who are looking to buy land for sale in established neighborhoods. These former sites of old-fashioned gas stations can be costly to rehab, depending on whether or not the underground tanks ruptured during their use or if they were collapsed properly when they were retired.
- Property condition and fixtures. Along with all the land and legal stuff working out just right, it’s vital that you do a thorough inspection of the actual building, including the fixtures that are supposed to remain as stated in the contract. A professional building inspector can be hired to give a general impression of the structure and systems as a whole, then any problem areas can be further addressed by experts in those areas, such as HVAC specialists or electricians.
Buying or leasing commercial real estate can be an involved process, but if you partner with a good Realtor, he or she can help to take a lot of the pain out of due diligence. This vital step in any good real estate contract ensures that you’re getting exactly what you expect and that your business will be able to function without being encumbered for the entire time you occupy the site.