• Jim Calvo

The Nature of Due Diligence

The nature of due diligence in a commercial transaction requires significant attention to detail that can be tedious and time consuming. A great starting point is to collect from the Seller documents and reports concerning the property that already exist. The best way to collect these documents begins by providing the seller with a list of the requested documents in an Exhibit to the Purchase and Sale Agreement. Since as a Buyer you are only requesting documents in existence it is reasonable to request delivery within seven days of contract signing.





Below is a form Exhibit that our office incorporates into our standard form purchase agreement. By specifically listing the requested documents and by also requesting that the Seller provide a statement that all such documents in their possession have been delivered, Buyers are more likely to receive from their Sellers more complete document delivery.

The focus of the documents in the below Exhibit sheds light on the maintenance and management costs of the property. The requested documents may even help uncover potential land mines, such as a governmental notice to bring the property into ADA compliance.

Due to the potentially sensitive nature of the documents requested in Exhibit E, some sellers can be reluctant to turn over the documents. Unsophisticated sellers may not even have many of the documents requested. In either event, it is important to insist that seller turn over all documents requested in their possession. If a seller does not have particular documents, a written statement to that effect is sufficient.


LIST OF DUE DILIGENCE DOCUMENTS

  1. Copies of the operating agreement and organizational documents of all entities with an interest in the Property;

  2. Copies of real estate property tax bills from 2020, 2021 and 2022 and notices of reassessment applicable to the 2020, 2021 and 2022 real estate taxes; and

  3. Copies of all leases affecting the Property and tenant applications and a rent roll listing the name of each tenant, the term, rental rate, tax and expense stops or reimbursements (where applicable), security deposits and options to renew or expand;

  4. Copies of all existing surveys of the Property;

  5. Copies of all notices of health, building, and zoning code violations, or any other governmental notices affecting the Property, in the Seller’s possession received in the last two (2) years, with respect to the Property;

  6. Copies of all architectural and engineering plans, specifications and drawings related to the Property and in the Seller’s possession;

  7. Copies of all licenses and permits affecting the Property;

  8. Copies of all insurance policies relating to the Property plus notices from insurers that improvements be made to the Property;

  9. List of operating expenses for the Property for the last three years, together with the books and records maintained by the Property for such years;

  10. Copies of all maintenance and service agreements;

  11. Copies of all warranties and guarantees;

  12. Copies of all other agreements affecting the ownership and operation of the Property;

  13. Copies of any environmental assessments, notices from and correspondence with any city, state, county or federal environmental departments;

  14. Copies of all agreements relating to the furnishing of utility services such as cable, telephone, electricity, gas, water and sewer service and other utilities of the property;

  15. Copies of all engineering reports on all aspects of the Property including those related to the roof, asphalt, HVAC, life safety systems, security systems, electrical and plumbing systems and the structural elements of the building, plus copies of all bids and proposals obtained for any work called for by the aforesaid;

  16. Such other information and reports relating to the Property, if any, in Seller’s possession; and

  17. Copies of cross easement documents, if any.

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