There are numerous factors to consider when buying commercial real estate, whether for development or merely for keeping the property in its existing condition. While price and location are often mentioned first, several legal issues may jeopardize the success of a business real estate arrangement in BC.
This article will explore the early stages of legal due diligence in a commercial real estate deal in British Columbia. Furthermore, we will explain what it means when a lawyer mentions “due diligence” while discussing buying commercial real estate property in BC.
Here are some due diligence measures to consider when purchasing commercial real estate.
Commercial Property Searches
Title Search
Reviewing the property’s title is one of the most essential phases in commercial real estate due diligence. The title may bear several charges and encumbrances, which might negatively impact the property’s value but will still be recorded after the sale. You may be able to request the seller to terminate any undesirable charges under specific conditions of a contract of purchase and sale.
Property Tax Search
In most commercial real estate transactions, the seller and buyer split property taxes and utility expenses in proportion to the time they have owned or possessed the property during the tax year. A property tax search confirms outstanding property taxes and utility bills.
Municipal Search
You can request various records from the municipality about buildings on the property, such as zoning and development information, heritage statuses of the buildings, outstanding permits that have not been finally inspected by the municipality or outstanding fire department deficiencies. These requests may take some time to process.
Site Registry Search
The BC site registry is a database that documents the provincial government’s environmental investigations and cleanups. Although it does not provide comprehensive information about all contaminated sites, it offers details about the government’s actions on properties that have been polluted.
Health Authority Search
If the property was formerly used as a food, water, or other personal service business, it’s wise to check with the local health authority. Records of outstanding infractions or concerns regarding the establishments may be found in searches made with the Health Authority.
Technical Safety BC Search
The province of British Columbia’s Technical Safety BC is a government agency that regulates the installation and operation of technical systems and equipment. It contains records on the property’s various systems and equipment, including electrical installations, boilers, refrigeration systems, natural gas and propane appliances, elevators and escalators. Scans for Technical Safety BC reveal if there are any outstanding non-compliance concerns or expenses.
Searches Regarding The Seller Of The Property
Personal Property Registry and Bank Act Searches
If the commercial property you want to purchase has any security interests against it, these will be registered at the Personal Property Registry and Bank Act Security Registry. Additionally, if any personal property is included in the sale, it may also be subject to security interests from previous owners.
This means they could have the legal right to seize these belongings even after you’ve purchased the commercial property. To avoid this unpleasant surprise, always check these registries for risks before finalizing any purchase decisions.
Corporate Search
When a company sells real estate, it’s usually done through a corporate buyer. This search is often done for any business sale involving corporate sellers. The corporate search provides basic information about the firm, such as its complete legal name and management team members. Most significantly, it displays the company’s status, such as whether it is in good standing.
Bankruptcy and Insolvency Search
Buying commercial property can be risky if the seller is going through bankruptcy proceedings because creditors may have claims to the house even after you purchase it. To avoid this, check on the seller’s financial status before proceeding with the sale.
Litigation Search
Litigation searches may reveal whether the seller has been sued or is currently being sued. This is relevant in establishing the seller’s reputation or determining a seller’s financial viability if it has to pay significant damages in a lawsuit. In some cases, the subject matter of the lawsuit can even be relevant to the property.
Canada Revenue Agency Search
A CRA (Canadian Revenue Agency) search will tell you if the seller has any unpaid GST or income tax. This is just one example that may be important when determining if a seller is financially viable.
Other factors that come into play when deciding which due diligence searches to conduct before purchasing commercial real estate include:
- cost of the searches
- timing of the purchase
- value of the property
- value of the personal property purchased along with the property
- what activities were previously conducted on the property
A commercial real estate transaction may need a broader scope of legal due diligence than the basic procedures outlined in this post. However, this article should provide a decent introduction to some early-stage due diligence actions that a careful buyer may take.
It’s always recommended to talk with a professional commercial real estate agent before signing any commercial real estate acquisition or sale contract. A lawyer can assist you in developing a due diligence strategy that is appropriate for you.
You Can Rely On The Following Tools When Buying Commercial Real Estate:
With a map view, quickly locate commercial real estate properties and buildings for sale or lease near your desired location. Also, set up Saved Searches notifications to be updated with all newly available office spaces and commercial properties.
This way, if any retail space or commercial real estate building goes up for sale or leasing, you’ll be the first to know! If needed, seek help from a real estate professional in British Columbia who can provide expert advice on the commercial real estate market both in British Columbia and surrounding areas.
Contact one of our commercial real estate agents if you have any questions about buying commercial real estate or due diligence.
