Commercial Property Due Diligence and Inspection: What to Check

Commercial property due diligence and inspection test the building, the lease, the income and the legal position behind a commercial property investment. They matter because a tidy warehouse can hide unfunded repairs, or a driveway the owner has no right to use. The building inspection is only one part of it. The real work is connecting what the documents say with what you find on site, before you are locked in. In this article, we’ll walk through the six checks to complete before committing, what to do with the findings, and the common questions buyers ask.

What Does Commercial Property Due Diligence Cover?

Commercial real estate due diligence combines legal, financial, physical and market checks. An inspection tells you about the building, but it cannot tell you whether the lease is enforceable, whether the current use is approved or whether the price is fair. Those answers come from your solicitor, your accountant, your lender and the market evidence.

Before you look at a single property, set your budget, your intended use and how long you could hold the property without rent. Our beginner’s guide to commercial property in Australia helps you frame those buying criteria, and our free due diligence checklist gives you a place to record each check.

6 Checks to Complete Before You Commit

1. Title, Access and Planning

Have your solicitor check ownership and any restrictions on title, including easements and covenants. Then confirm legal access. A warehouse can lose its appeal to tenants if trucks rely on a driveway the owner has no right to use.

Review the zoning, flood overlays and approvals for any improvements. Do not assume that a business trading from the premises proves the use is approved. Zoning also feeds straight into value, which we cover in does commercial zoning affect property value?

Searches, disclosure and contracts vary by state. In Victoria, the vendor provides a Section 32 statement. In New South Wales, a Section 10.7 planning certificate discloses the planning controls on the land. Ask a local solicitor to confirm which searches this property needs, what investigation conditions you can include, and whether any cooling-off rights apply to a commercial purchase.

2. Tenant and Lease Strength

Match the signed lease and every variation to the rent ledger. Check which entity signed the lease, what guarantees sit behind it and whether that entity can actually pay. A familiar trading name on the shopfront may not be the company responsible for the rent.

Then work through the terms that decide how secure the income really is:

• Lease expiry and any options to renew
• Rent reviews and incentives
• Assignment and break rights
• Make-good obligations
• Which expenses can be recovered from the tenant under the lease and the law

An early break right can make the income far less secure than the headline lease term suggests. Our article on buying a commercial property with existing tenants covers the tenant checks in more detail.

3. Building Condition and Functionality

A commercial property inspection should be done by a qualified commercial building inspector, with specialists brought in where the building needs them. Prioritise:

• Roof condition, leaks, drainage and moisture
• Slab damage, movement and structural concerns
• Electrical capacity, ventilation and mechanical systems
• Essential safety measure records, fire certification and access
• Loading areas, parking, clearance and truck movement

Ask the inspector what was excluded and which areas they could not reach. A visual inspection cannot rule out concealed defects or asbestos. In Victoria, also request the annual essential safety measures reports and maintenance records. Fire safety deficiencies can need fixing before a tenant can occupy the building, so price them before you commit.

Where contamination is possible, an environmental assessment usually starts with a Phase 1 review of the site’s history. If that raises concerns, a Phase 2 assessment takes samples. If you plan to change how the building is used, ask a building surveyor whether the change triggers code upgrades.

For more on what inspectors look for, see the ins and outs of commercial building inspections.

4. Strata Records and Shared Costs

For a strata property, ask for the financial statements and ledgers, AGM and committee minutes, the management agreement, insurance schedules, commission disclosures, and the capital works or sinking fund plan.

Compare the planned works with the reserves and any proposed special levies. As an illustration, $15,000 in reserves against $200,000 of proposed shared works leaves a large funding gap that owners may be asked to fill. Check the lot entitlements, resolutions and funding plan before you estimate your share.

Also check who is responsible for shared infrastructure, any disputes, and restrictions on parking, signage or alterations. An exclusive-use loading bay can make a unit more useful, but confirm who can use it and who pays for its repairs. A restriction you missed can undermine the tenant demand you assumed in your price.

5. Verified Income and Purchase Costs

Reconcile the rent with the lease and the ledger, then deduct the property expenses you cannot recover, including land tax where it applies. Our article on commercial property management fees helps you spot service charges that reduce the owner’s income.

For example, $70,000 in annual rent on a $1,000,000 purchase gives a 7% gross yield. Take away $12,000 in unrecovered expenses and you have $58,000, a simplified net yield of 5.8%. That figure still excludes finance, tax, acquisition costs, vacancy and capital works, so confirm how any advertised yield was calculated before you compare it with another.

Budget for stamp duty, professional fees, finance and GST. Our guide to commercial property costs in Australia lists what to allow for. Test the cash flow using real insurance quotes and feedback from your lender, because a higher premium than expected can eat into the rental margin quickly.

A leased property may be sold GST-free as a going concern, but having a tenant in place is not enough on its own. With your accountant and solicitor, confirm that the sale is for payment, the buyer is registered for GST, both parties have agreed in writing that it is a going concern, the seller supplies everything needed to keep the enterprise running, and the seller carries on that enterprise until settlement. Our article on GST when buying commercial property explains the basics.

6. Replacement Tenants and Resale Demand

Compare the lease with nearby leases, incentives, vacancy and competing supply. Visit the area during business hours. Good real estate due diligence asks who else could occupy the space if the current tenant left, because a specialised layout can narrow that pool quickly.

Then test the bad scenarios together: a vacancy, a lower rent on re-leasing, higher finance costs and an unplanned repair. Could your reserves absorb all of them at once?

Turn Your Findings Into a Buying Decision

Work through commercial property due diligence and inspection in this order:

1. Obtain the documents and agree access for inspections.
2. Confirm the contract conditions and deadlines with your solicitor.
3. Coordinate the legal, building, planning, finance and environmental checks.
4. Price the defects and reconcile your cash flow assumptions.
5. Resolve material uncertainties before you commit unconditionally.

Once the defects are priced, you can decide whether to investigate further, negotiate repairs or revised terms, or withdraw. Put any agreed changes in writing. A verbal assurance from the agent or vendor is not enough.

Before you sign, confirm the investigation conditions, notice deadlines and extension process with your solicitor, and keep one list of open questions, the adviser responsible and the date each answer is due. A buyer’s agent such as Revolve Commercial can coordinate those checks and negotiate on what they find. If you would like to talk through a property you are assessing, book a call with our team.

Frequently Asked Questions

How Long Should the Due Diligence Period Be?

There is no standard period. Allow enough time for searches, site access, specialist reports, the lender’s assessment and follow-up questions, and agree it before you sign.

Can You Rely on the Seller’s Inspection Report?

Check its date, scope, exclusions and who is entitled to rely on it. Your inspector and solicitor can tell you whether you need your own report or further investigations.

What Happens If Documents Arrive Late?

Ask your solicitor to deal with missing information before the deadline, including any request for an extension. Do not assume late documents automatically extend your rights under the contract.

Can You Withdraw After Finding a Problem?

That depends on the contract, its conditions, the deadlines and the law that applies. Get legal advice before you give notice or assume your deposit will be refunded.

Does a Lender Valuation Replace Your Own Checks?

No. A lender’s valuation is prepared for the lender’s own assessment and you may have limited rights to rely on it. It does not replace your legal or technical investigations.

Conclusion

Commercial property due diligence works when the inspection, the documents and the numbers are checked against each other. Finish the six checks, price what you find, and only go unconditional once the remaining risks fit your strategy and your reserves.

Need Help With Due Diligence on a Commercial Property?

Coordinating a solicitor, building inspector, accountant and lender against a contract deadline is hard to do on your own, especially on a first purchase. At Revolve Commercial, we help investors assess a property, organise the checks and negotiate on what they find.

If you would like to talk through a property you are considering, book a free call with an experienced commercial buyer agent at Revolve Commercial today.

Disclaimer: This article provides general information only and does not constitute financial, legal or tax advice. Obtain independent advice suited to your circumstances before acting.