At a glance
- Preparing a complete set of documents in advance prevents delays and renegotiation during due diligence.
- Soil conditions, permits and leases are standard areas of focus for buyers.
- Investors generally carry out more extensive due diligence than owner-occupiers.
What due diligence involves
Due diligence is the legal, technical and tax investigation carried out by a buyer or their advisers before the purchase becomes final. For commercial property, this goes beyond a building survey: permits, leases and soil conditions are also assessed.
The key areas
- Legal: ownership, easements, chain clauses requiring obligations to be passed on to successive owners, and any ground lease.
- Permits: environmental and planning permit, occupancy permit and compliance with the environmental plan.
- Leases: term, indexation, incentives and tenants' payment history.
- Technical: condition of the roof, building services and foundations, and any maintenance backlog.
- Environmental: soil investigation and, for older properties, an asbestos survey.
- Tax: VAT position, adjustment period and property transfer tax.
The difference between an owner-occupier and an investor
An owner-occupier focuses due diligence mainly on the property's technical condition and permits for their intended use. An investor also pays close attention to the quality and sustainability of the rental income, including tenants' creditworthiness.
How sellers can speed up the process
- Compile a complete set of documents before the first viewing.
- For older properties, have any soil or asbestos reports prepared in advance.
- Ensure that leases and the indexation history are clearly documented.
- Be transparent about known defects; this prevents renegotiation later.
What happens if due diligence reveals defects
Defects identified usually lead to a price adjustment, a warranty in the sale and purchase agreement, or an escrow arrangement under which part of the purchase price is withheld until a defect has been remedied. Always expressly record the agreed solution in the sale and purchase agreement.
Frequently asked questions
How long does due diligence take for a commercial property?
A few weeks for smaller properties; for larger or more complex properties with multiple tenants, it can take two to three months.
Who pays the costs of due diligence?
As a rule, the buyer pays for their own investigations unless otherwise agreed; sellers often contribute by making basic reports available in advance.