Due diligence is your window to confirm what you are actually buying before you’re contractually committed. Skip it, or rush it, and you inherit someone else’s problems – a weak tenant, an unrecoverable outgoing, a compliance bill or a use the zoning never allowed. Do it properly and you either buy with confidence or walk away before it costs you.
Commercial property due diligence runs across six areas. This is a practical checklist for buyers in NSW, and it’s general guidance rather than legal advice – your solicitor and accountant should confirm the detail for your specific purchase.
Legal and contract due diligence
Start with what you are legally signing up to. Order a title search and have your solicitor review the contract of sale in full, checking for encumbrances, easements, caveats and any restrictions registered against the property. Confirm the GST treatment – many leased commercial sales proceed as the sale of a going concern – and understand the conditions, deposit and settlement terms before you sign.
The single rule here is simple: have the contract legally reviewed before you commit, not after. A solicitor experienced in commercial property will find the clauses that matter, and this is not the place to save on advice.
Lease and tenant due diligence
For a tenanted investment, the lease is the asset – so this is the checking that matters most. Read the actual lease, not the summary in the marketing, and verify every income assumption against it:- Term remaining and any options to renew
- The weighted average lease expiry (WALE) across the tenancies
- The tenant’s covenant – their financial strength and trading history
- The rent review structure and how rent moves over the term
- How outgoings are recovered, and whether recovery is genuinely passed through
- Arrears history and the security held (bank guarantee or bond)
Financial due diligence
Once you trust the lease, test the numbers. Separate gross income from net, work through the full outgoings schedule, and confirm the statutory costs – council rates, water and land tax – the property carries. Check arrears and any incentives still being amortised, then work out the real net yield and sanity-check it against the asking price. This is where an over-ask exposes itself. If the income doesn’t support the price at a market yield, you have either a negotiating position or a reason to pass.
Building and physical due diligence
Commission independent inspections rather than relying on the vendor’s word. A building and pest inspection, a structural assessment where the age or type warrants it, and a review of the services and plant – air conditioning, electrical, hydraulics – tell you what capital the asset will need. Pay particular attention to compliance. Essential-services and fire compliance, disability access, and any outstanding work orders or make-good obligations can carry real cost, and they’re far cheaper to discover now than after settlement.Planning and zoning due diligence
Confirm that the use you’re buying the property for is actually allowed. Check the zoning and the permitted uses, review any existing development approvals, and make sure your intended use doesn’t require a fresh application you might not get. Look for heritage listings, planning overlays and any restrictions on the title, and check that parking and loading meet what your use needs. Buyers come unstuck here more often than anywhere else – assuming a property can be used a certain way, then discovering after settlement that it actually can’t. Verify it before you commit.Environmental and site due diligence
Finally, check the ground itself. A property with a prior industrial use may carry contamination history worth investigating, and flood or bushfire overlays can affect both use and insurance. Confirm easements and site access, and where the boundaries matter, get a survey. For industrial and older sites in particular, this step is worth the cost.Ready to get started?
Six checks stand between you and a costly surprise: legal, lease, financial, building, planning and environmental. Work through each one, lean on your solicitor and accountant for the specialist detail, and you buy knowing exactly what you own. If you’re assessing a commercial property in Western Sydney and want a hand reading the lease, the numbers or the local market, talk to the RWC Western Sydney team – and if you need a current read on value, start with a market appraisal.Frequently Asked Questions
- What is due diligence in commercial property? Due diligence is the investigation a buyer carries out before committing to a purchase, checking the legal, lease, financial, building, planning and environmental position of the property so there are no surprises after settlement. It confirms the income and flushes out risk while you can still walk away.
- How long does commercial property due diligence take? It varies with the asset and the conditions in your contract, but a typical due-diligence period runs a few weeks. Complex or tenanted properties take longer because there is more to verify.
- Who does the due diligence – the buyer or the agent? The buyer is responsible for their own due diligence, usually working with a solicitor, accountant and independent inspectors. A good commercial agent helps by assembling the information and pointing you to what matters, but the checks – and the decision – are yours.