Due diligence leasing commercial real estate.


13th March, 2019

Your 8-point due diligence checklist prior to leasing commercial real estate

Leasing commercial real estate can be one of the biggest investments a business owner can make, so it’s important to go above and beyond when doing your due diligence.

As a nimble business owner, you can usually navigate around the little bumps, but it’s the unexpected impacts on big investments that represent the largest risks. And for some business owners, leasing commercial real estate is one of the largest and riskiest investments you can make.

To help you minimise your exposure to risk, I’ve prepared a list of questions to answer before signing your next commercial lease. These have been compiled from my own experience as a business owner and also through some of the positive and negative experiences of my clients.

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1. How reputable and responsive is your real estate agent?

There are two key people that can make your commercial lease experience either positive or negative: the landlord and the real estate agent.

You may have found the perfect location and perfect venue, but before signing your commercial lease agreement, check out the reputation of the real estate agent. What has been your experience so far? Are you able to reach them on the telephone or email? How quickly do they get back to you?

Consider talking to other businesses who share the real estate agent and ask what their experience has been. If a pipe bursts or the roof caves in, it’s critical that you’re working with an agent who will take action immediately.

You also need to ensure that the agent provides accurate and timely invoicing. A simple phone call can determine if they’re responsive and capable of managing issues that arise with commercial leasing.

2. Is it possible to meet the owner of the building?

The other key person to have a good relationship with is the owner of the building.

In many cases it is not possible to meet the landlord, and this can cause problems.

Having a relationship with both the owner and the real estate agent reduces the chance of conflict. If a building owner likes your business or your plans for the building they may be generous with what they provide.

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For example, they may offer you a free rent period at the beginning or end of your commercial lease agreement. They also might be more flexible if you have to break your lease.

In many cases, certain repairs require the owner’s approval. If they’re hard to reach or disinterested, this may cause delays down the track that will cost valuable trading time.

It’s not necessarily a deal breaker, but your ability to foster a positive relationship with the landlord.

3. Does the local council have any outstanding issues with the property?

When leasing commercial real estate, you can’t assume the agent has all the information regarding the site. After all, they’re human and humans make mistakes all the time.

Once you’ve discovered what you can from the real estate agent, check with the local council to see if there are outstanding issues with the building. For example, they may raise issues regarding the payment of rates, issuance of permits, or complaints received.

Also, check if the building has a heritage overlay, as this may impact your signage and fit-out options.

4. Are there any co-tenants or previous tenants you can speak with?

If you get the chance, always check with other tenants about their experience with the landlord and real estate agent.

A great question to ask would be something like: “Is there something that you wished you’d known before signing the lease?”

Always let the tenant know what they tell you will be held in utmost confidence and won’t be reported back.

5. Are any major works planned that might impact business?

Sometimes works such as road construction, gas or water repairs happen and cause massive disruption to business.

These can be out of your control, but it’s nevertheless a good idea to investigate through online research and with the local council so you can identify anything that’s in the pipeline when leasing commercial real estate.

Big works such as tunnels and road construction are planned well in advance. General information regarding major works will be known to councils as well as advertised on websites by state or federal government.

Knowing that there is major disruption scheduled might persuade you to choose a different premise or may help you to plan around it and thereby avoid the worst of the impacts.

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6. What are the requirements, restrictions and permits for signage?

Every area has different signage requirements.

Requirements may be linked to heritage overlays, accessibility or road safety. And if your business is relying on signage to attract customers, then take the time to find out if there are any requirements, approval processes and limitations regarding its use.

7. What is the process and timing for building permits?

If you think you might like to do a major fit-out of a building for your business, you should check the permits required by the council before signing the lease agreement.

It’s also worth asking what the average waiting time for permits to be processed is. A wait of six months may be untenable for your business and you wouldn’t want to find this out after you’ve already signed the lease.

8. Will the premises work for your customers?

You might like the premises, the landlord, the real estate agent and the rent, but will the location seem as appealing to your customers? Does it have enough parking? Is it easy to find?

It might be helpful to seek advice from a marketing consultant who can work with you to ensure your property meets the needs of your customers as well.