Buying a Commercial Property – Safety Due Diligence

Commercial Property Due Diligence

 

 

“Many prospective buyers don’t consider Essential Safety Measures when buying a commercial property, and it’s really not surprising that it’s often overlooked in the pre-purchase due diligence process.”

 

Essential Safety Measures (ESMs) are sometimes referred to as Essential Services, and they relate to the safety items and elements in the building.  ALL Essential Safety Measures in a building are required to be tested, inspected and maintained with specific regularity, records must be kept, and an Annual Essential Safety Measures Report must be prepared EVERY year.

“As part of the pre-purchase due diligence process, we encourage buyers to ask the Agent if a current Annual Essential Safety Measures Report is available for the property, and to obtain a copy.”

 

Many current property owners aren’t aware of the mandatory obligations under the Building Regulations that requires them to maintain the ESMs and to have the Annual ESM Report prepared, so it’s really not surprising at all if it’s not on the radar of those buying a commercial property, particularly if it’s their first step into the commercial property market.

 

The Section 32 (the Vendor Statement) makes disclosures about the property and contains a range of attachments that provides/discloses information about the property to the buyer. It’s a legal document and it’s provided to the buyer before the Contract is signed.

 

“The Section 32 isn’t required to include information about the Essential Safety Measures, or whether a current Annual ESM Report exists for the property.”

 

Essential Services
Photo by rawpixel on Unsplash

With the Section 32 being silent on the condition of the Essential Safety Measures, a buyer may purchase a building only to find after settlement that the essential safety measures haven’t been maintained, and they’re up for the cost of repairing or replacing many of the essential safety measures in the building, purely due to the previous owners failure to comply with the mandatory requirements for maintenance.  Depending on the type and size of building, this cost could be in the thousands (or tens of thousands) of dollars – a nasty surprise nobody wants.

Being informed about essential safety measures, (or at least knowing they exist and are required) is a step in the right direction to be fully informed about the property.  This knowledge will help a prospective buyer fully consider whether the property is a the right choice for them, and if so, what offer they’ll make to the Agent after taking into consideration the state of the essential safety measures and whether they are fully compliant or not.

 

 

“If the essential safety measures haven’t been maintained as required, there’s an opportunity to negotiate the purchase price down, knowing that there’ll be the expense of upgrading the essential safety measures once settlement has taken place”

 

Once the building has been purchased, the moment settlement takes place, the new owner is immediately responsible for the Essential Safety Measures of the building. If any item is not compliant with Building Regulations, the new owner is fully responsible to rectify any issues, and to foot the bill for bringing the building back into a compliant state, to maintain the essential safety measures going forward, and to arrange for an Annual Essential Safety Measures Report to be prepared every year.

 

Essential Property Solutions assist building owners manage the essential safety measures in their buildings, please get in contact with us for further information or to discuss you needs.

Author:  Louise Doedee