By Larry Eliason
Buyers today, whether owner occupant or investor, should consider engaging a Commercial Real Estate Professional to assist them with Buying, Selling or Leasing a Commercial Property. Incorporating Due Diligence as part of the process for a purchase, sale or lease is an instrumental part of the process.
Site Inspectors/Environment Engineers are also recommended depending on the size and scope of the property. If the subject property has always been an office building, the scope and level of investigation may be limited. However, if the property was ever a Gas Station or a Dry Cleaner, then expect to go further into the history of the property. Department of Environmental Protection (DEP) records can be researched to determine if any spills or contamination may have occurred at the site or adjacent to it. There may be some ongoing monitoring on the subject property, or over on an abutting property.
Building Inspectors/Structural Engineers can offer insight on the condition of the structure, the systems, estimate the remaining useful life of those components and point out potential problems such as mold or other possible contamination.
And, in the case of New Commercial Development, a Civil Engineer will certainly offer insight as to a property’s development potential along with expectations for costs, timelines for approvals and construction and expectations from governing agencies such as Town, State and in some cases Federal Approval.
A typical Commercial Purchase and Sale Agreement spells out Inspections, Permits and Due Diligence. In many cases, the Seller is asked to provide any title history, surveys, engineering studies, architectural, geotechnical, storm water, utility, sewage, environmental, etc., as a request with the Seller’s documents being provided for informational purposes.
The Subject Premises are being conveyed “as is” or possibly “as complete” depending on the specifics of the building or project. The Seller generally grants the Buyer and/or his/her Agents to enter upon the property for reasonable investigations as part of the Due Diligence work.
The Contract should “Spell Out” to Buyer’s Satisfaction and in his/her sole discretion with its investigations, reviews, reports and findings and those specific items such as Environmental Testing, that are specifically spelled out in the contract. If the Buyer is unsatisfied with his/her investigation, the Contract may become null and void, can be renegotiated or the Buyer and Seller may agree to extend the contract to allow more time for Due Diligence.
Property Disclosures are a guide to a Commercial Property; however, Buyers should verify the facts as to what someone thinks is the case may have changed due to occupancy by Tenants or Zoning changes by a Town or the State such as setbacks from roads, wetlands, and abutting properties. In Windham for example, zoning ordinances are being modified on a regular basis so investigate what the Town may have in the pipeline for changes that could impact your investment objectives.
It is a good idea to get a title history done early on so that any title issues may be addressed during the normal course of the contract. A lot of times, title is done just before closing, problems with obtaining title insurance pop up and the deal must be extended to clean-up clouds on the title so an acceptable title policy may be issued.
Due Diligence on the Title can include a survey, easements of record, restrictions, exceptions, errors with legal description, undischarged liens to name a few.
Some Commercial Property Sales include the assignment of leases as the property may be a multi-tenanted shopping center. As part of the Lease Due Diligence, a Buyer may want to see any extensions in the leases and a payment history as well as any pre-existing Landlord consent given to a Tenant.
An Environmental Site Evaluation may become a requirement for a Buyer to obtain commercial bank financing. And this Due Diligence can help avoid inheriting potential liability such as Environmental Contamination.
A Phase I Environmental Report can help determine the presence or likely presence of any hazardous substances or petroleum products in or at the property. This can be due to a release in the environment or under conditions that could pose a threat of future release to the environment. The Phase I Environmental Report generally includes a site visit, local, state, and federal environmental records, historical research, interviews, and visual observations.
In the event further investigation is warranted, a Phase II Environmental Report may be required. In this case, testing is performed on site such as borings to look at soils samples and to determine an area of possible contamination.
If clean-up is required, this is what I would refer to as Phase III. Soil may need to be removed from the site to mitigate a problem. The remaining contaminated soil might need to remain as they are under a building or a road. The DEP has a program - Voluntary Response Action Program (VRAP) that helps reduce the liability for a Buyer and his/her Lender. The VRAP allows applicants to voluntarily investigate and cleanup properties to the Department's satisfaction, in exchange for protection from Department enforcement actions. The VRAP is intended to encourage the cleanup and redevelopment of contaminated properties within the state.
A property Condition Evaluation by a Building Inspector/Structural Engineer can give Buyers valuable insight as to the physical assets associated with a particular property. Site improvements, building components and operating systems such as HVAC can be observed, tested, and evaluated. Building deferred maintenance, anticipated capital repairs and replacements can be prepared. Some lenders require Property Condition Evaluations as part of their mortgage lending commitments.
When buying commercial real estate and/or commercial land, I would encourage all Buyers to do their “Due Diligence” and engage professionals for the Commercial Real Estate Buying process like a Real Estate/Title Attorney, Environmental Site Inspector/Engineer, Building Inspector/Structural Engineer and a Civil Engineer.
As a seasoned Commercial Real Estate Professional, I have over 35 years of experience to help clients access current as well as future Real Estate needs and to advance the quality of their real estate project and goals by capitalizing on my:
** Ability to search out the ideal solution and problem solve impediments
** Experience knowing and recognizing all of the requirements pertaining to completing the transactions
** Talent for bringing all parties together to fulfill their expectations.
Please feel free to contact me on my cell at 207-415-2112 or email me at LarryEliasonBCB@gmail.com Butts Commercial Brokers is at 1265 Roosevelt Trail, Raymond, Maine 04071 www.ButtsCommercialBrokers.com <
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