When you sign a new commercial property lease, due diligence
protects your business and your finances. But what is due diligence? And what
does it consist of in a commercial leasing process? Here's what you need to
know.
What Is Due Diligence?
In broad terms, due diligence refers to the act of
investigating to confirm the facts of a matter. This investigation doesn't
necessarily need to be overly complicated, but it should reasonably match the
scope of the contract or transaction being entered into.
When you sign a commercial lease, you enter into a
multi-year contract that will likely cost thousands of dollars and a large
investment of time and energy. Therefore, it would be due to research common
elements of the lease contract to ensure that things really are as they seem -
or as you believe them to be.
The means to complete due diligence vary depending on what
needs to be researched. You might have a lawyer look over some documents. Or
you may need to physically walk around an area or measure things on your own.
And you'll need to know how to track down some important property information
and documents.
What Does Lease Due Diligence Involve?
What should you research when it comes to a commercial
lease? The list varies depending on the property. But there are a few common
elements of the building, the owner, and the documents that most lessees
include in due diligence.
First and foremost, you should have the contract assessed by
legal professionals to ensure that you understand and can comply with all its
terms. The lease should stipulate things like who pays for what repairs or
maintenance, how disputes are resolved, what signage you may use, and options
for early termination. In addition, analyze the contract for vague
wording, missing items, errors, and required legal language.
Due diligence also involves ensuring that certain legal
issues won't come up after you enter the lease. For instance, you might verify
that local zoning ordinances allow you to run your business the way you want.
Checking that the owner isn't late on their own mortgage or doesn't have unpaid
property tax prevents you from suffering the fallout. And you'll want to make
sure that there's proper insurance coverage.
You may want to do some less formal research regarding the
owner or neighborhood. If you speak to other tenants, you can learn more about
how the property owner does business. You might check out the neighborhood to
see for yourself how well local businesses fare, whether there may be any
natural conflicts with your business, or how much turnover there is among
tenants.
Finally, verify aspects of the property itself. Is the HVAC
system up-to-date? Are there any structural issues that may end up on your
doorstep? Does the actual square footage match what's in the lease? Can you
make the necessary tenant improvements needed? Does the building meet all
applicable ADA (Americans with Disabilities Act) laws? Are all included
fixtures installed and working?
Where Should You Start?
Clearly, due diligence of your commercial lease takes some
time and effort, but it's an investment that your business needs. The best
place to learn more about how to approach all these due diligence tasks is with
an experienced commercial real estate agent who's done this before.
Realty One Group
Heritage
can help. With more than 30 years' combined experience, we have
helped many of your North Carolina neighbors find the right commercial property
to lease and making sure that they have all the information they need to make
the best decision. We can help you too. Call today to make an appointment with
a commercial real estate professional.
