Due diligence in commercial real estate transactions

On Behalf of | Sep 27, 2017 | commercial real estate

Thorough due diligence is crucial for commercial real estate buyers in Florida who wish to avoid costly mistakes, and taking care of the issues raised by these inquiries early in the transaction process can save both time and money. A due diligence period gives buyers the time they need to inspect properties and check out the claims made by sellers, and purchasers may back out of deals or negotiate more attractive terms when their efforts reveal building defects or uncover irregularities in financial documents.

Deposits generally become nonrefundable once the due diligence period has ended and any issues raised have been addressed. Parties eager to save time could allow due diligence to commence before a purchase agreement is signed provided that a letter of intent is in place, and they may choose to set strict time limits for some items while extending the deadlines of others. Many of the documents required to complete due diligence must be provided by sellers, and purchase agreements may stipulate that the due diligence time period begins only after such documents have been received by the buyers.

During the due diligence period, inspectors check the structural integrity of buildings and make a note of any items that require attention. However, much of the most important due diligence work involves studying documents. Titles are checked for liens, boundary problems and other issues, and the seller’s books and records are checked to make sure that the income being claimed during negotiations is actually being earned by the building.

Attorneys familiar with complex commercial real estate transactions may study compliance issues carefully during the due diligence process as environmental or land use disputes can be difficult to resolve. Attorneys may also suggest revisions to purchase agreements based upon the information uncovered during building inspections and document reviews.