Dear Metro Law
I may require your services. I am looking to purchase a new commercial premises from which to operate my automation business. I have my eye on a building out in East Auckland and I have been told that I should arrange for a lawyer to review the agreement before I sign on the dotted line. I have a feeling that there a number of things I should be looking out for. Are you able to help?
Geoff.
Hi Geoff,
Happy to help.
Where you may have to do a lot of work to check out a property it is a good idea to have a comprehensive due diligence clause. This means that you can agree on the price and know that you have secured the property before you start spending money on lawyers and reports.
A good due diligence clause will provide you with appropriate access to the property and information from the vendor.
You want the condition date to give you enough time to carry out all the necessary reports and hopefully tick off a few of the cheaper things first. Ideally the condition should let you cancel if the property is not suitable without having to provide reasons or reports. If the property is not suitable you don’t want to have to spill your guts to the vendor and the agent who may not be happy with you.
The agreement should provide that the deposit is payable when the agreement goes unconditional, this saves you having capital tied up and arguments about getting the deposit released.
Certificate of Title – Your lawyer will check the title for the property but you should check the title against what is physically on the property to make sure the title correctly records all structures that are permanently erected on the property, carparks can also be crucial. A review of the title should involve searching all of the interests registered on that title and whether any of those interests will adversely affect your use of the property, including any body corporate rules.
LIM – Your lawyer should review the LIM to determine the zoning and permitted use of the property, including the effect of the Auckland Unitary Plan. The LIM will also record any building or resource consents that may have been acquired for the property, whether the building has a current warrant of fitness and if the property subject to any restrictions or zoning requirements. This is particularly important if you are intending to change the use of the property as the council may use this as an excuse to revisit all of their requirements for the property.
A client of mine once bought a gift shop intending to change it into a bar and the Council decided to require full earthquake strengthening to the building as part of this consent process.
It is often worthwhile going into the council to talk to a planner. Make sure you record their full name and position if you are relying on their advice.
If you know that you are going to do something unusual with the property then you may want to consider engaging a professional planner.
Soundness and Quality – You may want to engage an engineer to review the soundness and quality of the building, particularly if it is an older property. An initial evaluation procedure, coined an IEP Report, may be available from the vendor or lodged with the council. This report assesses the building for its potential earthquake rating to ultimately determine whether or not the building is earthquake prone.
Lease – Although you might want to use the property to operate your own business you need to be aware of any current lease in place. I once had a client buy a property on the assurance from the vendor that the lease had expired. They didn’t talk to the tenant who wanted to renew. Even though the tenant had missed their review date they still had a statutory right to apply to the High Court for relief. Our client ended up with a tenanted property when they wanted a vacant one.
Once more the Chinese proverb “meet the neighbour, buy the house” rang true.
Tax advice – always get professional tax advice when purchasing (or selling) commercial property.
Let me know if I can help you with any parts of the investigation and good luck.