Why Large Office Tenants Should Complete Due Diligence Prior to Signing a Lease

May 13, 2019

When large office tenants are evaluating a new transaction there are a myriad of financial factors to consider. Normally these include rent, operating expenses, real estate taxes and tenant improvement costs. What about capital improvements to the building that is owned by a third party landlord?

In our client engagements we routinely hire an engineer to evaluate the base building mechanical and electrical systems to ensure that there is enough capacity to meet our client’s requirements. The timing of this evaluation is critical because the concept of “buyer beware” prevails. Quite often we uncover deficiencies that we are able to get the Landlord to fix at their cost because we dealt with it prior to signing the transaction. There are numerous stories of companies uncovering deficiencies in the construction phase well after the lease has been executed, and guess who pays for those problems.

We are currently working with a large company that has found a great building and we have negotiated a very competitive transaction for them. During our diligence phase we uncovered some cracks in the ground floor and some significant sloping of the floor. While the Landlord does not believe it is a significant issue, we have retained engineers to evaluate the extent of the problem and potential remedies. Fortunately this is all being done before the lease was signed.

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