5 Reasons You Need Property Due Diligence With Commercial Real Estate Transactions
When engaging in commercial real estate transactions for clients, it is important to conduct due diligence on the property and the transaction in order to avoid any unwelcome surprises after the transaction closes. Here are five of the top reasons to thoroughly vet commercial real estate transactions with property due diligence review:
- Caveat emptor. There is a presumption that the parties involved in commercial real estate transactions are sophisticated, so consumer protection laws designed to protect individual homeowners generally don’t apply.
- Identify legal restrictions. While it may seem basic, commercial property owners who fail to investigate title restrictions, zoning laws, or permit requirements for a target property may find themselves limited in what they can do with the property after closing. Due diligence can uncover encroachments, easements, restrictive covenants, or other contractual limitations.
- Evaluate leases. When a commercial property has existing leases and tenants in place, due diligence can provide prospective buyers with an evaluation of lease provisions and obligations that could materially impact them. A buyer does not want to find out, after closing, that their tenants’ leases provide unusual (and unwanted) provisions that may have long-term financial impact.
- Analyze financial terms. Conducting commercial real estate due diligence provides the buyer an opportunity to evaluate the terms of the transaction. This takes on heightened importance when the seller is financing some or all of the transaction. Purchasers need to not only be comfortable with the terms and reserve requirements; they also need to ensure they can adhere to the lender’s reporting requirements.
- Avoid surprises. Whether the buyer is an investor, a developer, or the end user for the property, conducting thorough due diligence is the best way to make sure that the property’s characteristics actually meet the buyer’s requirements and expectations for use.
Utilizing expert support for the thorough due diligence requirements in a commercial real estate transaction is critical for making decisions in the best interests of your organization. Baer Reed real estate property due diligence services offers you access to experienced, expert attorneys and support. Contact us today, or call (888) 433-1990 for more information.
- On January 30, 2018
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