Editor’s Note: Clint D. Routson is a member of the Real Estate Section of Ward and Smith, P.A.

This is the second of a two-part article that is intended to help business owners focus on important issues in property transactions that sometimes get limited consideration due to the attention that price and other general business considerations receive. In Part 1, the focus was on issues relevant to the real property, the "dirt," if you will. In this Part 2, the focus is on existing improvements that may be on the land.

The building and its various components should be inspected by individuals qualified to inspect the item being inspected.

The Roof

Is the roof watertight and what is its expected life? Any signs of prior leakage? Roof problems can lead to hidden problems like mold and structural damage.

Building Structure

Is the structure sound? Is there any evidence of soil or building movement, moisture damage, rust, termites, or other problems?

Heating, Ventilation, Air Conditioning (HVAC)

In addition to determining if the HVAC system is in good condition and its expected life, the inspection should try to determine if the HVAC system will be adequate to cool the building once you have installed all of your equipment.

Indoor Air Quality

Is there evidence of mold or other indoor air quality problems? Should the air be tested for contaminants? Does the HVAC system need to be cleaned? Claims of injury by employees due to mold and other building problems are increasing.

Electrical

What is the capacity of the electrical system? How power hungry is the equipment you intend to run? Will the service to the building and/or all of the wiring in the building be able to handle the power demands and, if not, what will need to be replaced?

Communication

Will your business require access to any special communication services (such as fiber optic) and, if so, is it available at the property?

Building Plans

If the seller has a copy of the building plans, be sure to obtain a copy. The plans will be helpful when you decide to make improvements to the building in the future. You may want to include any rights the seller has in the building plans as part of the items you are purchasing; however, be aware that the architect may own those rights and the seller may not have any rights in the plans to sell. If available, review a copy of the original and/or current Certificate of Occupancy.

Asbestos

While most people think of insulation-wrapped pipes when they think of asbestos, the use of asbestos in floor tiles, mastics, ceiling tiles, ceiling finishings, and other items makes asbestos a continuing issue. Unfortunately, whether a material is an asbestos containing material ("ACM") normally requires a lab test of a small portion of the material. Generally, ACM in good condition is not a problem; however, the presence of ACM in the building may require you to establish an Operations and Maintenance Plan to prevent a release of asbestos and to limit the exposure of employees to the ACM. If the ACM is breaking up or in poor condition, or if you are planning any renovation or demolition work in the ACM area, then EPA-mandated procedures may have to be followed to encapsulate or remove the ACM. Asbestos testing and removal should be done by accredited asbestos personnel.

Americans With Disabilities Act

Does the building comply with the Americans with Disabilities Act ("ADA"), and, if not, what will it cost to bring the building into compliance? A multistory or multilevel building may require expensive modifications, such as the installation of an elevator, and even minor modifications, such as the addition of an access ramp, may present problems due to a limited area available for the ramp.

Assumption of Contracts

Are there any service or similar contracts in place that you must or want to assume? These could include contracts for elevator inspection and maintenance, HVAC inspection and maintenance, landscaping maintenance, garbage disposal, and security systems. You should review the terms of any contracts you will assume.

Liability and Property Insurance

Determine if you will be able to obtain liability and property insurance on the property and, if so, if the cost is acceptable. Wind and hail insurance on buildings in coastal areas tends to be very expensive and generally must be purchased by a separate policy in addition to the standard fire policy. Past insurance losses at the property may affect the availability and cost of the insurance. If the building is in a flood zone, is flood insurance available and, if so, is the cost acceptable? Review your insurance policy so you understand your coverage.

Closing Thoughts

As mentioned at the beginning of this article and in Part 1, this is a general list of issues to consider in commercial property transactions. If your offer to the seller does not include a term or condition that is important to protect your interests, then you may be stuck. Consequently, it is important to consider all of the issues listed above, as well as those listed in Part 1, before you make the offer.

©Ward and Smith, P.A., 2008

Ward and Smith, P.A. provides a multi-specialty approach to the representation of technology companies and their officers, directors, employees, and investors. Clint D. Routson practices in the Real Estate Section, where he concentrates his practice on commercial real estate issues. Comments or questions may be sent to cdr@wardandsmith.com.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.