Commercial property due diligence checklist – Comprehensive Guide for a New Office Buyer

Why Is Due diligence important for commercial property? – Even if it is a single commercial property that you will buy or 10 unit of commercial property for an investment. You will make sure to do your Due Diligence when you buy a Commercial property, it’s usually a time taking procedure and only a few people know about it. We are sure you must be getting some questions in your mind like, what does due diligence actually mean? What is due diligence? And what exactly is the significance of it? Here’s the answer to all your questions regarding, types of commercial property due Diligence checklist to maintain before buying a commercial property. Here, have a look!

What is Due Diligence?

Due diligence is a whole process and complicated phase in Commercial property acquisition. It is the inspection and investigation of a property, personal or a business entity to bring the buyer on a decision toward nature of property and clears the risk involved in the purchasing property. A buyer definitely do not want to leave any stone and utmost time to review all the important aspects and documents regarding the property.

Why is Commercial Property due Diligence and real estate due diligence process important?

The important role of due diligence is an attempt to resolve any doubt about the commercial property when he or she committed to buy. It includes some most important information related to the property and you should be aware of it. Due diligence activity is possibly the most important form of the agreement required in commercial property. This action has the potential of not only impacting the commercial property but also conclusive the advantage of the deal itself. While the commercial property generally pays huge importance to facilitate the conclusion of a matter. It is so necessary to check the title, permitted use, the legality of construction, debt and legal right which have the capability to contact the nature of the property and its agreement to the commercial needs of Bond.

The Main purpose of Due diligence is to get the right information. The points that should be taken into consideration are as follows:-

• Nature of the property
• Type of Capital
• Description of the commercial property transaction (For the long term, short term and lease)
• Time-period of payment fulfilment
• Loan available on the commercial property or not

And a commonly asked question:

Question: Does the owner have the appropriate authority to enter into the deal associated with commercial Property?

Answer: It will be like nature of contract or deed, complaint, unpaid taxes, legal right etc.

Types of Due Diligence and real estate due diligence process

Build upon the type of activity, ownership and equitable member it will be divided into two particular categories:

1. Financial Due Diligence incorporates an examination and survey of the objective organization’s money related proclamations, expense forms, bookkeeping arrangements, and monetary patterns. It fills in as the beginning stage for your due industriousness process.
2. Legal Due Diligence is basic. This progression requires a careful examination and audit of corporate archives; contracts and understandings; continuous, pending and potential prosecution; ecological variables; and lawful and administrative consistency.
3. Business Due Diligence requires the investigation and audit of key and strategies for success, clients and items, and markets and rivalry. It will enable you to recognize whether the business is going to experience a change and whether one client involves a huge dominant part of the objective’s client base, in this way exhibiting danger should that client leave resulting to shutting the exchange
4. Operations Due Diligence incorporates the examination and audit of the organization’s innovation, settled resources and offices, and also land and protection scope. It likewise takes a gander at whether there is any critical operational hazard that influences evaluating or executing the arrangement by any stretch of the imagination.
5. HR due determination takes a gander at the association’s structure, representative advantages, administration and staff, and work matters. For instance, are there any association question or issues with worker non-contends?

Steps for Commercial property due diligence checklist

1. Title and nature of the property
2. Legal rights on the property
3. Authority of the Construction
4. Debt over the Property

Let’s Understand The Terms related to Commercial Property Due Diligence Checklist

1. Title and nature of an individual over the property: Consider the right of the individual over the property and transferable rights e.g. like Property allocation by state and central government, right of continuous lease, freehold purchase or possession right.
2. Legal Rights on Property: It is so important to know the legal rights of an individual on the property and inspect the sale deed with the name of property holder registration.

• Partition of land: If the individual (Present owner) property have a partition, then one needs to investigate the deed of the partition to determine whether there were any restrictions in the deed which may affect transferability of property.
• Registered as Gift: If the property collected as a gift one need to inspect the registered gift deed of the property and its condition related to payment of maintenance and restriction for indifference.
• Constant lease: If the property is attained by constant lease, then the deed of the lease should be examined and considered as the transferability of legal right and the case of transmission.

3. Authority of the construction: If the property associated with the development of the land, it also turns into an important aspect to know the validity of the construction. Each State government and the relevant local authority’s secular down their rules and regulations which will be approved by civil authority of the state construction need to be carried off or not. It will be the first meeting to the legal expectation of property. According to the law size of the construction area, the setbacks area and height of the construction.
4. Debt over the property: This one is probably the most important steps to check that property doesn’t have any loan, charges and debts. The document of the property free from all kind of debt or loan the reason behind it the document should be considered by the sub-registrar of properties it is also recommended that you should carry a certificate of debt if any, on the property, you will get this certificate from the sub-registrar of the area where property is located.

Here is the Commercial Property Due Diligence Checklist:

• To check whether the land is for agriculture, industrial, residential or commercial purposes.
• To check the allocation of property from the Government record with survey number, lay-out sanctioned plan.
• To check whether the property contains joint names, then NOC should be Obtain by the co-owner.
• To check the chain of deeds, lease deed and stamped receipt over whichever the property has been transferred or the present owner.
• If a property is retained by HUF or a familial property, check the Family tree to verify the death certificate of the initial owner and get a copy of settlement deed.
• To check whether a property exists to partnership firm or trust audit of the copy.
• If a property belongs to the official liquidator the order of authorization from the court should be verified.
• Accurate plan of the commercial property. It should be done by a licensed land surveyor which including measurement details of the property.
• To check whether all the taxes have been paid or not because property tax act as a first charge which is paid to Govt. or Municipality it should be confirmed.
• Also, check that if the property belongs to a company then you have to check the Memorandum & Article of association certificate.
• To check the environmental clearance and occupation certificate issued by the adequate authority.
• If a seller is physically not present to sell the property and appoint you the broker. It will be required to audit the power of attorney.
• Nature of agreement with the seller
• Check the payment of charges such as electricity, water etc.
• The total area of the Commercial
• Rights copy of owner and builder
• Common area and other Facilities
• Parking lots

Conclusion

The role of due diligence varies from property to property. When you think about the investment make sure to remember a few points in your mind while buying a commercial property. And the decision of making Profitable Investment in Real estate needs to have more research and planning. And Commercial Property Due Diligence Checklist is one thing that you must keep.