Q&A with Martin Fisher, Director of Asset Management Sydney
Due diligence when considering a commercial property purchase
Q. What should first time investors do?
A. “Commercial property is not a uniform asset class and property type variations and tenant profiles should be carefully considered before purchase. It’s prudent to inspect the property prior to purchase and to review any associated lease documentation associated with the property.
A property manager can provide advice on what concerns may arise after a property is acquired – problems are often sold with a property and may only become apparent after settlement.”
Q. is due diligence required?
A. “The standard of due diligence varies according to the type of property, its age and location. Older properties will have repair and maintenance costs which should be assessed as part of a review of potential expenditure for the first few years of ownership. Brand new buildings also have a risk profile, for example warranties and building plans are an integral part of any due diligence package.
Critically, the due diligence process should ensure that the property currently complies with any relevant property legislation. This may relate to compliance with the nature of the property if established, or planning permit/building permit conditions if the property has been recently developed.”
Q. How can an asset manager assist prior to purchase?
A. “All properties have a risk profile which should be assessed in conjunction with your asset manager.
All leases are slightly different and you also need to understand your obligation as a landlord, particularly with regard to capital items.
Your asset manager can provide advice on the way the repair clauses in a lease operate and which party is responsible for repairs, maintenance and statutory compliance throughout the term of the lease. The tenant profile can also be reviewed with your asset manager who can advise on the approach to be taken when enforcing covenants in the lease.”