For new business owners who are considering starting or purchasing a business, it can be overwhelming trying to understand what you should consider when inspecting a commercial premises. A potential tenant should then set aside some time to undertake due diligence of the property before signing the lease and ask questions such as:

  • What is the average foot traffic of the property?
  • Is there any competition nearby?
  • What is the physical condition of the property?
  • What regulations may affect the property (e.g. fire safety, noise, environmental or work health safe and safety)?

This article will run through some practical tips for conducting due diligence on a potential commercial premise for your business.

Why is it Important to be Aware of the Laws and Regulations?

A lease agreement is a contract that sets out a tenant’s rights and obligations. When you enter into a lease, you also agree to comply with any applicable laws and regulations in your state and territory. Understanding the relevant Acts that apply will ensure you have a better understanding of how to assess the premises in light of your intended business activity and what questions to ask the landlord or agent.

1. Enquire About Fire Equipment and Fire Safety 

You should identify the fire equipment used on the premises and the building and request confirmation of whether the fire equipment has met the standards of any applicable legislation. Request any assessment reports, statements or compliance certificates for the property and ask for details as to how often the fire safety equipment and overall systems are reviewed or serviced.

If there is additional work needed to ensure the premises comply with any fire safety legislation, this can be a negotiation point to raise with the landlord or agent before commencing occupation. It is important to keep in mind that you may be liable for costs to remain compliant with any fire safety regulations. You will also likely have a responsibility to develop and comply with emergency plans and procedures of a building.

2. Request Details About Noise Restrictions

Does your proposed business activity generate noise? If so, you should consider whether any laws or regulations or strata by-laws restrict noise. Amplified music, large crowds, ongoing construction or fittings and equipment attached to the property (e.g. air conditioning) can be issues to raise. Knowing whether a particular premises has noise restrictions will help you to confirm whether they are a good fit for your business.

3. Get Advice on Hazardous Materials

Hazardous materials can create issues regarding the health of any workers or visitors to the property. You may wish to raise this when discussing the property with the landlord or the agent and determine whether further works would be necessary for the removal of hazardous materials, such as asbestos. This is something to be wary of particularly for older buildings.

Ensure you factor the cost of removing any hazardous materials into your business plan and negotiations with the landlord or agent. It’s common to receive expert advice and assistance as it could be dangerous to dispose of such material on your own.

4. Assess the Accessibility of the Property

Is the premises accessible not only for workers but also visitors, clients or customers? If a property does not have an elevator or ramps, this can leave it inaccessible to people in wheelchairs. Also, consider accessibility from the perspective of potential risks and injuries to people. For example, if your business involves regular heavy deliveries, a multi-level property with no elevator may be unsuitable.

5. Reviewing Ventilation of the Property

Businesses in the food and beverage industry should consider ventilation when inspecting the property. Ventilation is important for complying with food preparation laws and regulations or those relating to health and safety. Ensure that you not only enquire about the ventilation but also check and test any equipment/fittings are in good working order. This will help you to save money later down the line when it comes to repairs.

What are the Consequences of Non-Compliance?

As mentioned above, often a lease will require you to comply with any applicable laws and regulations. If you fail to comply, you are not only breaching the lease but also the applicable local and state laws which may carry penalties. Undertaking due diligence to acknowledge and consider the relevant legislation will help you to avoid further costs later down the line.

Key Takeaways

When choosing a new location for your business and entering into a commercial lease, it’s important that you conduct a due diligence process that is relevant to your particular enterprise. Every business premises with have a different set of concerns depending on the nature of the operation and location of the premises.

You should inquire about safety regulations, including fire safety and accessibility, ventilation and noise regulation on the property, and the presence of any hazardous materials. Of course, the above list does not cover all the possible due diligence steps you can undertake when considering a property, especially as the laws are different throughout the states and territories in Australia. However, starting the process is a crucial starting point to initiate discussions with the landlord or agent.

If you have any questions or need assistance undertaking due diligence for your new business premises, get in touch with our commercial leasing team on 1300 544 755.

Kristine Biason

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