Due Diligence Checklist | Acquisition | Real Estate | PDF
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The concept of Due Diligence has been part of the legal lexicon for over a century now. Its most general meaning is the detailed appraisal of an item, especially a business, which must be taken by either a buyer or a seller prior to the sale. The nature and thoroughness of this appraisal is dictated by the laws and traditions involved in the specific circumstances.
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Using a Due Diligence Checklist
If you are buying commercial real estate, the first item on your Due Diligence Checklist is the building inspection. Key items of this point of the checklist are the HVAC systems, the plumbing and the electrical systems. Due diligence, in this case, requires employing the services of licensed, bonded inspectors.
Another key point on you Due Diligence Checklist for commercial real estate is zoning. Are you legally permitted to use your purchase as planned, and what, if any, are the legal hurdles that must be overcome before you can do so? You must also research the title to the property to see if there are any contractual issues that must be dealt with, and what will be the costs in doing so.
A very important item on your Due Diligence Checklist is the evaluation of existing leases. This is particularly important if the property you are considering has existing tenants who’s contractual rights must be respected, and who’s credit worthiness must be evaluated.
If you plan on acquiring an ongoing business, the first item on your Due Diligence Checklist is a thorough examination of its financial records. This includes the tax returns, balance sheet, accounts receivable and payable, inventories and order backlogs. You must also learn of any ongoing litigation and claims against the entity.
A very critical item on your Due Diligence Checklist will be to evaluate all contractual commitments this business has made to outside stakeholders. This includes suppliers, customers, business partners and all financial agreements. Of particular importance are relationships with insurance carriers.
Finally, your checklist must also include an evaluation of obligations to existing employees, and the hold the company has on its intellectual property and trade secrets. You will also want to evaluate the company’s relationships with its major customers. Due Diligence requires an analysis of their level of satisfaction, and whether or not they can be expected to stay with the company after you take it over.
Your Due Diligence Checklist must cover the company’s regulatory environment. You must confirm that the real property is free of asbestos and that it conforms to the latest applicable building codes.
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