Due Diligence

Are you planning to purchase a residential or commercial property? If so, you’ll likely find a due diligence clause within the contract. This provision gives a buyer the right to perform searches on the property (i.e. building and pest inspection, mould inspection, etc.) and to terminate the contract if the results are unsatisfactory.

While it is not compulsory, real estate due diligence is highly desirable for potential buyers. The clause covers buyers who wish to conduct body corporate inspections, soil tests, surveys and council and conveyancing searches. A due diligence clause proves especially helpful should any of the aforementioned inspections produce poor results. In this case, a buyer has the right to terminate either under the contract or at law.

Commercial property due diligence

Before investing in a commercial property, due diligence is a vital consideration. Essentially, it’s a risk assessment to determine if it’s a worthwhile investment. Two of the most important due diligence areas  for the commercial property include:

Legal – This involves checking for titles, restrictive covenants, recoverable GST on leases, options and right of refusal, inclusions, warranties and exclusions and a proper review of the sales contract.

Technical – This is the most complex aspect, as it requires a visual inspection. Surveyors and engineers examine the condition of the building’s structure and services (i.e. aircon, electrical, etc). In addition, the maintenance contract, past investments, outgoings budget and potential environmental contamination threats.

Once these areas are addressed, you need to determine: how they impact value, the costs involved, whether the risks can be managed and whether you should proceed.

Property development due diligence

Almost all property development clauses contain a due diligence clause. A correctly drafted clause should contain provisions for:

• A buyer to set deadlines to conduct essential searches before settling
• Require the seller to provide all documents regarding the land, and;
• If these two prove unsatisfactory, the buyer may terminate the contract and receive a full refund.

Performing due diligence before undertaking property development is vital for many reasons. The process determines whether your plans can be developed and whether you can earn a profit. Due diligence also determines project feasibility, factors in any possible delays and gives overall site details.

Essentially, this process is designed to flag any potential issues. This minimises delays and mistakes.

Purchase your next residential or commercial property with confidence. Call or email Accuro Maxwell for a due diligence check today.