Due Diligence in Florida Commercial Real Estate

What you should actually be doing during a due diligence period.

As a potential Buyer of Florida commercial real estate, you know that you should include a “due diligence” period in your contract so you can analyze the condition of the property and its adequacy and feasibility for your intended use. But you may have questions, such as:magnifyloan

  • What are “best practices” for due diligence?
  • How long should the due diligence period last?
  • What protections should you include?
  • What specific types of investigations should you conduct?

Look Before You Leap: Why Due Diligence Is Important

Buying commercial property in Florida exposes you to certain risks. For instance, if you purchase a property that is contaminated by environmental waste either due to prior uses on the property, potentially even uses on other property resulting in the migration of environmental waste to your property, you may be liable for cleanup and damages, even though you didn’t cause that spill or even know about it before you bought the property. The potential costs could be staggering.

The moral is: Conduct due diligence to find out as much as you can about the property you intend to buy to identify potential risks and make an informed decision to buy or not to buy the property.

Timeframe

You and the Seller must negotiate the timeframes for the Seller to disclose any information that have and are willing to turn over to the Buyer and for the Buyer to conduct their due diligence. Typically, the commercial contract will require the Seller to turn over all prior surveys, reports, environmental assessments, plans and other key documents within five (5) days after the effective date of the contract. These documents will usually give the Buyer as basis on which to begin analyzing the property. How long the Buyer’s due diligence period should be depends entirely on the existing and proposed use of the property, the Buyer and Seller’s comfort level with each other and other factors. For example, the due diligence period for a vacant parcel of agricultural land that has never been developed and for which the Buyer has no particular development plans may be as short as thirty (30) days, if there is one at all. However, if the Buyer intends to develop that land into a residential subdivision, the Buyer may require a months-long due diligence period, and perhaps a year or year and a half before closing in order to obtain all their development approvals, permits, and other necessary precursors to development. Likewise, if the property is already being used for some industrial use or is in close proximity to industrial uses, the Buyer may require a long due diligence period in order to conduct extensive environmental assessments and other investigations.

What to Do

During due diligence period, depending on your intended use of the property, you may need to investigate the following, just for starters:

  • Current and Future Zoning;
  • Availability of Permits;
  • Availability of Utilities;
  • Status of Current Leases, if income producing;
  • Boundary Disputes, Encroachments and other matters of survey;
  • Flood Zones;
  • Setbacks;
  • Usable Acreage;
  • Availability of Casualty and Flood Insurance;
  • Termite/Wood Destroying Organisms Damage;
  • Environmental Problems and Remediation;
  • Restrictions on the Possible Uses of the Property;
  • Other specific concerns about the property.

An experienced Florida commercial real estate lawyer can help you understand what tests and inspections to conduct to help you make an informed decision and minimize your risks.

What If You Can’t Complete Due Diligence in Time?

If your due diligence period is expiring and you have not finished all investigations you believe to be necessary or desirable, it is often possible to negotiate an extension with the Seller. Even if doing so means having to pay an additional deposit or allowing all or a portion of your deposit to become non-refundable, it is generally wiser to err on the side of caution rather than rushing to make a decision without complete information. Avoid pulling the trigger on the deal unless you’re convinced of its merits or, at minimum, are comfortable with the potential risks involved and be prepared to walk away if necessary. Letting what appears to be a promising deal go may be better than proceeding to closing only to find out later that the property isn’t suitable for your proposed use or that you are responsible for cleaning up a decades’ old fuel spill or dry cleaning fluid leak, or removing a long-buried fuel tank, that you had no idea existed.

About Brad Hester

Former Florida dairy farmer turned real estate attorney; Architecture and MBA degrees from University of Florida ('87 and '90) (Go Gators!!); Law degree from University of North Carolina-Chapel Hill ('00) (Go Tarheels!!); Now practicing law at Frank A. Hamner, P.A., in Winter Park, Florida.

Comments

  1. hey nice article !. its really very helpful.

  2. Great article.

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