After you’ve had your offer accepted but before you close on the commercial property, you will enter a period known as the due diligence phase of the transaction. During this period, you will be able to further research the property and ensure everything is as it should be before you officially become the new owner. But what happens if something comes up during this crucial period in the buying process? We explain how to navigate an issue during the due diligence period of commercial property acquisition.
When A Problem Is Discovered During Due Diligence
It’s quite common for some issues to be discovered during the due diligence phase. After all, you’re not likely to know about the environmental composition of the soil or the true boundary lines without conducting some surveys of your own, and you can’t really do that until you’ve reached a purchase agreement. So what happens if a minor or a major issue is discovered during this crucial period? Let’s explain some of the options below.
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Fix It Yourself After The Purchase - Perhaps you got a good deal on the property with the expectation that there would be some issues that you’d need to address after the sale was complete. You may not know exactly what these issues are, but they will hopefully be discovered during the due diligence phase if you’re working with a title service company. They’ll be able to discover potential issues and connect you with other professionals who can conduct helpful surveys and assessments. If the issues are relatively minor and not something you wish to haggle over with the seller, you can start budgeting and plan to fix the problems once you’ve officially acquired the property.
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Ask Seller To Fix - Many surveys and assessments uncover minor or major issues that should be addressed prior to the sale. If you have a professional help to write your purchase agreement, you can ensure some of these potential issues are written into your purchase contract so that the seller either needs to fix them before closing or you can walk away from the sale without forfeiting earnest money or incurring similar penalties. Most sellers anticipate some work will need to be done on their end to improve certain aspects of their property before a sale goes through.
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Renegotiate A Price - You’re also within your rights to renegotiate a purchase price once issues are discovered. For example, if an environmental issue or a boundary problem was discovered and it’s estimated that it would cost $20,000 to fix, you could either ask the seller to fix the problem or reduce the sale price by $20,000 to account for the work you’ll need to put in to correct the issue once you’ve completed the sale.
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Back Out Of The Purchase - Finally, some issues may simply be too much of a deal breaker for you to be able to move forward. For example, if there are environmental issues or land use restrictions that would make it impossible for you to run your business on the property, you may have to back out of a purchase once these issues are discovered. Again, writing these potential issues into a purchase contract with the help of a professional can ensure you don’t incur any penalties for backing out of a purchase when a reasonable issue is brought to your attention during the due diligence period.
If you want help writing a purchase agreement or working with a team to ensure you are protected during the due diligence process, connect with the team at Commercial Partners today. Give our team a call at (612) 337-2470.