The due diligence officer has the very important task to verify, verify, verify. Of course there area exceptions to the rule and one major are the true triple-net property. There's a misconception about what is a real and true triple-net property. Seems that commercial real estate professionals to the point where their definitions not only confuse the buyer but also mislead them to have thrown around a bunch of jargon and terminology.

Honestly speaking the true triple-net, multi-tenant property is an extremely rare find. What this means with a true triple-net leased property is that the tenant takes on the responsibility and expenses of operating the property and this can include a long laundry list such as property taxes; property casualty, and liability insurance; all maintenance including: structural components, mechanical systems, plumbing and drainage systems, glass, and the roof. This just does not happen with most commercial properties.

For the owner, they have a vested interest in the property, which boils down to a small amount of inclusive rights relating to real estate. The only thing this owner needs worry about is where the rent check is sent. Sounds like a property manager's dream come true. The only real way to make the property work that well for you, in the case of a multi-tenant property, is to set up a master lease for the entire building. What happens is then the lessee sublets to each individual tenant. It's almost as if the lessee acts as your agent in the continued transactions for the property.

Still this arrangement does not make sense to many commercial property owners because it sets them up for trusting one individual and ultimately a lot of risk of that individual fails their duties. An owner should be focused on their return on investment and bringing up the value of the property, not looking for an easy way out of maintaining said property. This arrangement really would be done only in very unique situations.

Many commercial property buyers find themselves victim to poor property definitions. It can be true that the due diligence legal ease may make this true triple-net property seem less complex because of the reduced exposure for risk and expense, but it is important to examine the more commonly found properties that are either owner managed or managed by a third party under close contract with an owner.

What many do not understand is when exactly due diligence actually starts in the contract negotiation. Unfortunately both parties to the transaction are usually uneducated about what to ask for, what the stipulations of the deal are before actually signing the deal and this is what causes the most trouble before even seeing the closing table.

There are multiple items on the contract that must be reviewed and understood by both parties. The seller if wise in these affairs will be guarded and hesitant to share documents and disclosures. That is why it is extremely important to have an updated contract that truly reflects the purchase agreement. As with any transaction of this nature, it is expected to be further negotiation before the final draft.

Another issue with these transactions and negotiating a contract is time. There needs to be at least 30 days after delivery of documents for everyone to review, otherwise a due diligence cannot effectively be completed. Specifically, our agreements ask that there must be written notice of completed due diligence and satisfactory in our sole discretion. Otherwise, if these things are not in place, we see no further obligation to the matter and we are permitted to return the earnest money deposit.

It is also important for one to realize that the due diligence should not be executed until after all parties sign the contract. Timing is also very important and we keep to a strict timeline, which is defined by the delivery date of the LAST document. Of course there are issues of provisions for the extension of time based on the appearance of any non-disclosed material defects.

Really requiring written notice of all details of the due diligence items, makes the most legal sense because then you control of the deal. It can also be said that you maintain a little bit of influence upon the seller as the closing date nears.  You will want to hold off until the last hour on accepting the due diligence if you have any concern about the deal. There is a certain amount of mind play but it is at everyone's best interest. In this line of work, you find many different personalities and it is important to go with your gut about a person.

Still this business of due diligence presents such a grey area of understanding especially after the condition of the property has been assessed. After that there are many intangibles that have to be decided when assessing a commercial property for acquisition. It can be a very long, arduous process because every document pertaining to the building and its business must be critically scrutinized. Really it is in everyone's best interests for all details to be on the table and minimize any surprises. Such details include lease extensions and modifications, notes and mortgages, whether you are assuming them or not, title policy, certificate of occupancy, insurance policies, ADA compliance, elevator maintenance contracts, tax tickets and history, licenses, parking lot contracts, etc.

The list created from the Purchase Agreement is a good starting point when assigning the task for it to some member of the acquisition team, whether it's the lawyer, surveyor, building inspector, environmental firm or whomever. It is important that each member of the team be aware of the time line and their needed expertise. I find it crucial to continue following up with each member and communicating the important highlights to the transaction to each.

There are many things that can go wrong with deal of this complexity. Short of failure to obtain financing, many deals are dead in this stage than any other. At risk of sounding idiotic, it only takes one missing document to ruin months of hard work and postpone the closing. With that happening, the chances increase of something else going wrong so keep all your ducks in a row. Keep yourself focused on the details and stay on top of your team.