Due diligence is important in a commercial real estate purchase

When an Ontario businessperson has his or her eye on a commercial property, there could be several risks, and the only way in which these can be minimized is by performing due diligence. Purchasing commercial real estate is a substantial investment, and if unanticipated losses occur, they may also be considerable. When due diligence is performed, it will give the prospective buyer the opportunity to ensure it will be a sound investment.

A building assessment will provide information about its physical condition, but elusive problems may exist. Liens and other obligations can be uncovered by researching the history of the building. This may avoid unanticipated surprises. Evaluation of the income stream from existing tenants is necessary because it may be vulnerable to the state of the economy, and a thorough assessment of their credit files and payment history may be a wise step. If the commercial building has only one tenant, an investor should consider the financial impact if that business should go under.

A valuable source of information may be the insurance history of the building -- especially an older structure. Knowing the nature of any insurance claims filed in the past may provide insight into any potential liabilities and defects. Some professionals advise that a purchaser should arrange a thirty-day period with the seller for this purpose before signing final documents. All the relevant documents can be scrutinized during that time.

Due diligence can be a complicated process, and it might be wise to secure the services of an experienced Ontario commercial real estate lawyer to help with the necessary assessments. He or she can also make sure nothing is left unaddressed. Once a property is approved, the lawyer can provide valuable advocacy throughout the acquisition process.

Source: bdc.ca, "Buying a commercial building? Don't forget about due diligence", Accessed on June 12, 2017

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