Commercial Property Buyers and Lessees - Do This At Your Own Peril

 Commercial Property Buyers and Lessees - Do This At Your Own Peril

Robert S. Michaud, P.E.

10/1/20

Your company is looking to move into a new building. Perhaps you have outgrown your existing facility, or maybe it doesn’t have the features or location you need. You have found just what you are looking for, the deal looks good and you are ready to execute the purchase (or lease). Your accountant has looked over the numbers, and your lawyer has looked over the contract, so you have done your due diligence, right?

Not so fast. Commercial facilities can be complex assets, and whether you are purchasing it outright, or leasing it (triple net with much of the capital costs landing squarely in your lap), if you don’t have a qualified commercial building inspector look conduct a thorough inspection of the building and its equipment, you really don’t know what you are getting into. You wouldn’t buy a home without a home inspection, so why would you buy or lease a property that is far more complex than a residential building?

There is more to consider when purchasing or leasing a commercial property, and there are significant benefits for all parties – the buyer, the seller and the real estate agents involved. Let’s consider each from their unique perspective.

From the buyer / lessee perspective:

This is the most obvious perspective. As a buyer, you need to make sure that you know what you are buying / leasing. A trained, qualified commercial building inspector can find those hidden concerns that could end costing your company down the road if not addressed, and the best time to address them is during the negotiation process.

There are other considerations too. Instead of just a one-time inspection to find any potential surprises, why not take this opportunity to build a maintenance program for this new asset so that you can stay on top of the capital and maintenance related issues that are part of owning any asset. By establishing a good maintenance program from the start, you will minimize surprises and the overall cost of ownership of your new asset.

From the seller / lessor perspective:

Savvy building owners and managers know the value of properly maintaining their properties, but even the best and most conscientious maintenance programs are more focused on the day to day maintenance and may not be as in tuned to the expected lifespan of various building systems and the effect they may have on the sale of a property. For instance, you may be diligent in your roof or boiler maintenance procedures, and your efforts may have even extended the expected life spans of those systems but eventually all things reach their end of life. You may be entirely comfortable with the current operating condition of the systems in question, but a qualified and experienced independent third party inspector may shed light on how much more time could reasonably be expected and provide you the cost information that you need to either upgrade the system before selling or leasing the property, or to negotiate with during the sale / lease process. Knowledge is power, and in this case, knowing ahead of the sale or lease process gives you options and the opportunity to address them before they come up in sales or lease negotiations.

From the Realtor perspective:

Whether you are the buyer’s agent or the seller’s agent, the goal is to get to “YES”. Using the reasons mentioned above, you owe it to your clients to encourage them to engage with a qualified third party expert to remove any surprises ahead of time. No one likes surprises of this nature, and by helping your clients thoroughly throughout the process, you demonstrate your commitment to their satisfaction and increase your chances for referrals and repeat sales.

There are some real estate agents that appear to be wary of building inspections. They seem to be concerned that if problems are discovered they will jeopardize the sale process. This is short sighted and if you are working with the right inspection professional, the opposite could be true. A qualified professional can see beyond the problems and offer solutions. If the inspectors you recommend perform a superficial inspection and miss key issues, or alternatively find problems but do not offer remedies and cost estimates when appropriate, they are not serving your client well, nor are they serving the sales process well. Ultimately, you want your client to be well served so that they have a positive experience and either refer you to other and / or return themselves for future property needs. Commercial properties are potentially far more complex than residential properties which is all the more reason to engage a qualified, experienced inspector to be part of the process.

© Michaud Engineering Inc. 2020