When you’re buying a commercial property, you’ll likely proceed on the basis of a conditional sale and purchase agreement.

It’s a document that outlines the process for your purchase. The problem is, labelling it “conditional” makes it seem like you can edit it once you’ve signed it.
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This is not the case.

The word “conditional” refers to the conditions that need to be satisfied for the transaction to be confirmed. It’s not a proposed set of conditions that you can go away and think about. 

Many buyers make the mistake of signing the agreement, then wanting to amend parts of it. While you can make some changes, it’s much easier to negotiate a favourable agreement before it’s signed. 

This is why it’s always better to talk to a lawyer before you sign any agreement.

A conditional sale and purchase agreement outlines details and processes including:

• The name of the buyer - you as an individual, in a partnership/trust or through a company
• GST details, including if GST is payable on the purchase 
• The size of the deposit, and when it’s to be paid
• Leasing details, including if the sale of the property is subject to an existing lease 
• Any chattels that are included in the sale, and their condition
• Warranties, particularly for consented works and compliance certificates
• Conditions for the sale to go ahead, and the date by which the conditions are to be satisfied

When you’ve signed a conditional sale and purchase agreement, it goes to your lawyer for a due diligence phase. 

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What commercial property due diligence involves

Many commercial property buyers don’t really understand the due diligence process. 

Some won’t really care - they’ll trust the lawyer to do it for them and spot any issues. Others want to be a bit more informed…while some go as far as wanting to do it all themselves.

Due diligence is the process of reviewing a range of aspects of the property to ensure they’re satisfactory before confirming the purchase.

Regardless of how involved you are in the process, it’s worth understanding a little bit about what due diligence includes.

1. Ensuring the current and future uses of the property are permitted under the District Plan.
   
   
2. Checking all building and utilities requirements.
   
   
3. Making sure the property has no unconsented additions or work.
   
   
4. Checking the Building Warrant of Fitness for any issues (if there is one).
   
   
5. Understanding the implications or costs if the use of the building is to change.
   
   
6. Finding out if there is any prepaid rent the new owner is entitled to, and if any existing tenant may have issues paying their rent in future.
   
   
7. Getting an independent valuation.
   
   
8. Checking if the current insurer has any issues with the property.
   
   
9. Checking for any earthquake strengthening requirements, particularly in older buildings.
   
   
10. Ensuring there are no encroachment concerns with neighbouring properties.
    
    
11. Reviewing the title for anything that may impact the intended use of the property. This includes easements, car parks and shared spaces.
    
    
12. Completing any required environmental report.

This is just some of what’s involved in due diligence, and how it benefits purchasers of commercial property.

For more information on due diligence, including a cost estimate for your due diligence or other legal advice for your property, get in touch with NZ Legal today by completing the form below.

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