Due Diligence in Commercial Property

Due diligence starts way before you’ve found the property.
It starts with being clear on what won’t work, and being open enough to ideas and opportunities you hadn’t otherwise explored.

You know your business better than anyone, and you know the goals you want to put in place.

Before you even start searching for a property, I’d suggest asking questions of suppliers, industry colleagues, other business owners, and your advisory team. Get a well-rounded view before you dive into the search for a new site or purchase.

Have a list of your non-negotiables. These should be classified based on whether they could affect business operations or future growth.

I’ve seen too many instances where non-negotiables aren’t considered properly at the beginning, resulting in wasted time, missed opportunities, and significant costs. Especially when they’re only considered once the property is secured and unconditional. At that point, you could be facing a highly restrictive property or substantial remediation costs.

Your non-negotiables might include:

Services to the area
For example, if you’re setting up a warehouse that requires gas, make sure the site actually has gas. If it doesn’t, check whether it’s available nearby and whether the cost to install would be prohibitive.

Zoning
This is a big one. Make sure your business fits within the zoning. Check with the local council. Most councils offer a concierge or pre-application service for a small fee, which can help you understand what would otherwise be required. Alternatively, a town planner can guide you through this.

The size and structure of the building
Think about how the space works operationally. Consider both what the business needs today and what it might need tomorrow.

Overlays
These can prohibit both use and future value. Overlays might include flooding (inundation), environmental protection or soil contamination, and building structure or condition. These can affect operations, insurance, and long-term viability.

For a comprehensive list of due diligence components, click here to access our checklist.

A lot of people don’t give enough thought to what can go wrong. That’s usually where unnecessary stress creeps in, time gets eaten up rectifying avoidable issues, and costs blow out when that money could have been invested in growing the business.

The last thing you want is to end up with a property that doesn’t serve you well. One that forces you to go backwards before you can go forwards, or worse, creates a PR nightmare.

We once worked with a client who engaged us to negotiate and run due diligence on a site they had found for a children’s play centre. While there was no EPA registration, we had immediate concerns about soil health, particularly given the plans for underground parking and, more importantly, the potential long-term health implications for children. Not to mention the reputational risk. I imagine most parents wouldn’t want their children spending time on a site where soil toxicity could be an issue.

There is a cost to doing business when searching for the right site.
The real question is this: would you rather pay a smaller fee upfront to get the right information and decide whether to proceed or walk away, or pay the price when it’s potentially too late?

This is especially true in commercial property.

What always works best is having your non-negotiables clear from the outset. Once you shortlist a property, use a checklist and make sure everything is considered before you sign anything.

In commercial property, you typically run initial due diligence first. If the property passes those checks, you move into negotiations. Once the offer is accepted, you complete the remaining due diligence. Always ensure contracts allow you to walk away without penalty and recover deposits if something material is uncovered.

Initial Due Diligence Includes

1. Planning and use risk

2. Leases (if there is any occupancy in place)
   In some cases, a short-term lease can work in your favour if you need time for permits or build works. Always review lease terms carefully to ensure vacant possession when you need it.

3. Outgoings and holding cost exposure
   Council rates, land tax, insurance, utilities, body corporate, maintenance.
   You want the real annual holding cost, not an agent summary.

4. Title, access and basic legal constraints
   At a high level at this stage. Check for easements, rights of way, access issues, or shared services that could limit use later.

5. Location functionality, not popularity
   Forget “good area.” Ask whether the location works operationally for staff, customers, deliveries, parking and visibility.

6. Exit logic
   Before you fall in love, ask who would buy this from you. If you can’t articulate an exit, don’t overpay.

Comprehensive due diligence takes time and should be tailored to the business use, asset type, location, size and council requirements. For a full guide, click here to download.

Before You Go Unconditional, Consider These 15 Items

• Permitted use

• Future use flexibility

• Building compliance status

• Remaining life of major systems

• Services capacity

• Access and logistics

• Parking

• Noise and amenity constraints

• Outgoings and ownership costs

• Body corporate or shared rules

• Insurance viability

• Environmental risk exposure

• Boundary and encroachment risk

• Financing and valuation risk

• Exit and resale logic

Create your list long before you need it.
Stress-test it with your advisors and key people. Hold the property to account.

Once you find a site you love, it’s easy to bypass key checks and assume it will all work out. That’s often the difference between a great property decision and one with long-term, restrictive consequences.

Reach out for a comprehensive checklist