Importance of Due Diligence Periods for Property Buyers
If you are looking to purchase real property, especially commercial property, due diligence is a very important portion of the purchasing process and should not be overlooked during the initial phase. As a buyer, you need to ensure that your purchase and sale agreement provides for a due diligence period allowing time for you to determine if the property you are purchasing is economically feasible. One of the main purposes of due diligence is to determine if there are any zoning restrictions or other prohibitions, codes, regulations, ordinances, or requirements imposed by any governmental authority that would prevent you from using the property in the way you intend.
In addition, Environmental due diligence is extremely important when purchasing commercial property. As a buyer, it is in your best interest to determine if the property is free from hazardous materials and does not contain an environmental hazard under state or federal law. Accordingly, if there is financing involved, your lender may require a Phase I and/or Phase II environmental site assessment. You should ensure your purchase and sale agreement provides you with enough time to complete all necessary environmental due diligence, as well as, obtain and review a title search and survey, and acquire any other reports required by your lender.
Additionally, the due diligence period should provide an “out” in the event you do not find the property acceptable and wish to cancel the contract. It is best if a buyer has the option to cancel the purchase and sale agreement at any time during the due diligence period. The cancellation language in the purchase and sale agreement should provide that, upon cancellation, the buyer, as well as the seller, are released and relieved of any further obligations under the purchase and sale agreement and that all money that the buyer has previously paid to the seller must be refunded.
Please be advised that this blog on the importance of due diligence is simplified. It is strongly advised that you consult with an experienced real estate attorney to assist you through the purchasing process. Here at Moorhead Real Estate Law Group, there are multiple experienced real estate attorneys who are ready to help with any questions or concerns you may have.