When a tenant relocates to new commercial real estate property, it is their responsibility to perform due diligence prior to signing the lease agreement. Because this process can be time-consuming and requires a thorough inspection by someone who knows business properties, due diligence should be performed with the help of experienced tenant representatives.
If you are a company looking for new space, skilled tenant reps can help you look at all issues related to due diligence so you can ensure the property you are considering fulfills all legal requirements and suits your specific needs.
How Does Due Diligence Relate to Commercial Real Estate?
Due diligence in relation to commercial real estate is the process of assessing a property to ensure it meets local safety and building code laws and regulations. Before leasing any space, it is essential that a company and their tenant representatives assess a building’s compliance with these codes both on a general level and in accordance with how it will be used.
Since each company's needs vary, tenant reps say each tenant must go through their own individual process of due diligence before signing a lease.
Why Is Due Diligence So Important?
Due diligence of commercial real estate ensures that a tenant has thoroughly examined the property they wish to lease and found it to be legally compliant with local safety laws based on how they will use the building. If compliance issues are discovered, they can be discussed during lease negotiations and properly remedied.
If you are a tenant company and the building you lease does not comply with local laws, it can be a real liability and leave no legal recourse against the landlord once a lease has been signed. The best way to deal with potential compliance issues is to ensure they are discovered beforehand, which is a valid reason to hire tenant representatives.
What Factors Should Be Assessed?
When working through the due diligence process with tenant reps, a tenant must evaluate many factors to ensure a building is both compliant and suitable for a specific use. Following are some things to consider:
- Local fire safety laws and what fire equipment is currently in the building.
- Building ventilation requirements as well as the condition and function of existing ventilation equipment.
- Property occupancy limits and if a building has proper accessibility for employees, customers and other visitors, including those with disabilities. Buildings that need to be updated to comply with ADA must be carefully negotiated with a landlord as these modifications can be costly.
- Laws on the presence, use, and removal of hazardous materials in the building. This can be an issue with older buildings that may require asbestos removal before improvements can be made. Costs should be determined ahead of time and used as a bargaining tool with the landlord.
- Applicable noise restriction laws.
- Any other local safety or legal aspects that must meet compliance.
If you are a company looking for new commercial real estate, it is critical before you sign a lease that you go through the due diligence process with experienced tenant representatives. Compliance issues are a threat to the health and safety of those who use the building and could make you liable for non-compliance.
Due diligence gives every business and their tenant reps the opportunity to thoroughly inspect the premises to look for and deal with potential problems before signing a lease!