Commercial Property Due Diligence - a Lawyer's Practical Guide

COMMERCIAL PROPERTY DUE DILIGENCE

- A LAWYER’S PRACTICAL GUIDE

Presented by:Tom Meagher

Director – Corporate & Commercial Law

© Murfett Legal 2015All rights reserved – no reproduction

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Tom Meagher | Director – Commercial Law

Tom has over 25 years’ business experience; including working for major national and local law firms, owning and managing an IT business, and being a director and in-house counsel for a public company. Tom’s clients include a extensive range of local, national and international businesses and organisations as well as high net-wealth families. Tom is also a regular publisher of articles, and in-demand presenter of seminars to various professional bodies and associations on a wide range of business law topics including:


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• LegalWise • The Tax Institute • Australian Institute of Conveyancers • Institute of Chartered Accountants of Australia • Law Society of WA • Institute of Public Accountants • Governance Institute • National Electrical & Communications Association • Small Business Development Corporation • CPA Australia • Mortgage & Finance Association of Australia • Stirling Business Enterprise Centre • Institute of Certified Bookkeepers • Western Suburbs Business Association • Business Foundations Inc. • WA Business Assist.

Disclaimer

The information presented in this seminar is intended only as a guide, as to the topic and the matters discussed.

This seminar is not legal advice and must not be relied on as such.

If you have a matter which relates to this seminar or you require legal advice, careful review and analysis of your matter’s particular facts, information and documents is required before proper legal advice can be given or applied to your matter.


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Certificate of Title• Identify land.• Obtain current title search.• Check for any previously unknown interests.• Obtain and review all documents evidencing:

easements, caveats, restrictive covenants, notifications, memorials or other encumbrances.

• Request details of any unregistered interests, including car parking arrangements, if any, particularly with local authorities or adjoining owners.

• Get clause 42 Certificate under Metropolitan Region Scheme – check zoning.

• Check with local authority as to any restrictions on land.


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Restrictions on sale• Confirm that there are no options granted to

third parties.• Confirm that there are no pre-emptive rights in

favour of tenants.• Confirm that there are no other restrictions in

leases likely to affect the sale, or the purchaser's capacity to operate or expand the building.


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Leases• Locate all lease documents.• Review signed* lease documents including:

– Extension and assignment documents– Dates of expiry/exercise of options to renew

• Confirm WAPC approvals were granted prior to entry into lease and endorsed on the lease where necessary.

• Confirm that there are no ‘first rights of refusal’ to purchase.

• Obtain details of any bonds/deposits/bank guarantees held.

• Obtain details of fit-out. © Murfett Legal 2015All rights reserved – no reproduction

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Leases (cont.)• Details of tenant’s paint and repair obligations.• Check details of any caveats lodged - leasehold

interests.• Check details of any special access arrangements.• Check for any tenants that are in arrears.• Check if there is a car parking licence.• Prepare a tenancy schedule setting out all of the

above information.• Check GST position in leases – long term leases

may not have GST provisions allowing recovery of GST from tenant. This can have significant ramifications for purchaser. © Murfett Legal 2015

All rights reserved – no reproduction permitted

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ManagementMaintenance Agreements• Review all contracts including in respect of the following:

• Check assignment provisions and expiry date of these contracts.

• Prepare a schedule with the relevant details of the maintenance contracts.

• Check that owner has certification as to safety facilities (Worksafe requirements).


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• cleaning/sanitation• physical maintenance• lifts• escalators

• plant• electrical• neon signs• background music

Management (cont.)Utilities• Check for any special arrangements with Western Power and/or

Alinta Gas.Rates and taxes adjustments• Confirm what has been paid and what is required to be paid.Business name/trade marks• Confirm whether building name is a registered business name

(note: registered trade mark is best).• Check to see whether the building name, if it is used by

tenants, is covered by the lease.• Check signage rights in respect of building. There can be

complications for a purchaser if the signage rights conflict with the purchaser's requirements for signage.


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Management (cont.)Insurance • Confirm details of current insurances.• Check that insurances conform with lease requirements.• Ask for details of any current insurance claims.• Title insurance?Tax Issues• For depreciable items, ask for estimate of proposed written

down value. Depreciation can be very important for a purchaser.

• GST – consider whether the sale is a sale of a going concern or whether the property will be sold under the margin scheme.


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Management (cont.)Chattels• Confirm what chattels (e.g. premises plant & equipment),

fixtures and fittings will be included in the sale – conduct a Personal Property Securities Act encumbrance check on the PPSR.

• Obtain proof of ownership of chattels if necessary.


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PhysicalDescription of property • If an identification survey exists, is it current and can the

purchaser rely on it?• Consider whether a new identification survey should be

completed.• Obtain copies of all plans and specifications held by the

vendor.• Boundary (note: watch for ‘adverse possession’ with old

fences/ dividing walls, shed etc). • Consider whether there are any known or suspected

encroachments.• Consider also undertaking a Property Interest Report from

Landgate to identify any unregistered interest that may affect the use of the property. © Murfett Legal 2015


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Physical (cont.)State of the property• For recent buildings:

– is the ‘benefit’ of the building contract (e.g. structural warranties) to be passed on to the purchaser?

– confirm appropriate certificates for the local authority and DFES have been issued.

• Building and structural report.• Confirm that no asbestos or ‘concrete cancer’ exists.• Consider the need for an environmental audit (e.g.

Contaminated Sites Act issues).• Consider whether any other obvious physical defects should be

reviewed by engineers or other experts.• Review any consultant's report for liability issues.• Ask for "as-built" drawings to assist the purchaser's inspection of

the property.© Murfett Legal 2015


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Physical (cont.)Plant and machinery• Ask for:

– plant and machinery permits and certificates– warranties and operational manuals

• Ask whether any major maintenance or structural repairs are planned for the sale period and the source of the funds to pay for it.

• Review any consultant's inspection reports for liability issues.


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Planning, licensing and environment

Current zoning and use • Conduct the usual purchaser's inquiries with local authority,

WAPC, etc.• Confirm current zoning and that the use/uses conform with

that zoning with the local authority and the WAPC.• Review compliance of the property with original and any recent

planning consents/building approvals, especially lettable area limits and car parking requirements.

Work Orders• Check whether any work orders exist (i.e. local authority,

DFES, DEP or Worksafe WA).• Enquire of Water Corporation, Main Roads, local authority,

Western Power and Alinta Gas if any major works are planned.© Murfett Legal 2015


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Planning, licensing and environment (cont.)

Liquor licensing• Check if any premises in the building has a liquor licence.• Obtain a copy of the liquor licence and approved plans.• Conduct enquiries with the licensing authority – (e.g.

disciplinary action, outstanding works orders etc)Environmental• Search DEP databases and recent environmental assessments.• Obtain permission from vendor to conduct environmental

testing if required.• Contamination?


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Heritage and Aboriginal heritage• Conduct searches of:

– Local Government Municipal Inventory;– Heritage Council Register;– Register of the National Estate (Australia Heritage Commission);– Fifth schedule of the City of Perth Planning scheme for National

Trust of Australia listing;– Department of Indigenous Affairs Register of significant sites and

objects;– Aboriginal Lands Trust Estate website.

• Obtain permission of vendor to conduct heritage assessment if necessary.

• Review any heritage assessment and reports and advise clients. © Murfett Legal 2015


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Plans• Ensure that all plans for the building (e.g. electrical,

construction etc) are available. These are essential for a purchaser.

Water Issues• Does the purchaser require water to be drawn from a water

course or interference with a water course? • Are ‘riparian rights’ (to draw water) integral to the value of the

property? • Is there an existing water licence? • Should the contract be subject to the Department of Water

undertaking to grant the appropriate water licence?


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Other EnquiriesStatus of vendor• Conduct ASIC, PPSR and court registry searches

(including bankruptcy register).• Trustee?Status of tenants and other contracting parties• Conduct ASIC, PPSR and court registry searches

(including bankruptcy register) of major and other relevant parties.


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How to avoid unnecessary legal risk, cost and stress

1. Don’t rely on friends, ‘mates’, agents or other non-qualified third parties for “advice”. They: a) do not act for you, b) do not owe you no fiduciary duty; andc) are not qualified (or insured!) to give you proper legal advice.

2. Engage a lawyer at the right time – e.g. you do the deal but before you accept a contract, be sure to obtain appropriate legal advice.

3. Business lawyers can add value and can be better than warranty/insurance claims or litigation!

4. If a dispute arises, be sure to clarify the issues in writing, keep all material information/documents and seek advice early (also, if applicable, promptly notify your relevant insurer – rights of subrogation).


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Seek professional, friendly legal advice so you can make

an informed decision.• Business /

Commercial Law• Business

Structures• Business

Succession• Business

Turnaround• Contract Advice• Debt Collection• Employment Law• Estate Planning• Franchising

• Hospitality Law

• Insolvency• Intellectual

Property• Leasing• Liquor

Licensing• Litigation• Property Law

Advice• Restructuring

• Settlements• Sports and

Entertainment Law

• Strategy and Negotiation

• Superannuation• Taxation• Trusts• Wills


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THANK YOU!

www.murfett.com.au +61 (8) 9388 3100

[email protected] View my LinkedIn® Profile


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Commercial Property Due Diligence - a Lawyer's Practical Guide

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Transcript of Commercial Property Due Diligence - a Lawyer's Practical Guide