This blog series explores the steps involved in buying and selling a business, which tend to be much more complex than many business owners realize. In prior blog posts, I explained how due diligence comes into play, the nature of due diligence requests related to the structure of the business entity that is selling its assets and to financial information, due diligence as it relates to the seller’s customers and contracts, and the importance of making inquiries in regard to insurance. In this post, I will discuss due diligence requests involving real and personal property.
In many cases, the sale of a business involves the transfer of both real and personal property. If the business owns real property, the purchaser will likely make due diligence inquiries to identify all owned and leased real property including the street address, legal description, and a description of the use of the property. A savvy purchaser will also seek to obtain copies of all pertinent documents related to the real property including title insurance, deeds, mortgages, deeds of trust, leases, subleases, easements, and appraisals.
If owned or leased personal property is at play, the purchaser may request the title documents for any assets of significant value. If the seller is transferring owned or leased equipment, machinery, furniture, fixtures, or vehicles, a purchaser who is represented by an attorney will often request information about these assets including whether any existing liabilities are present (such as a vehicle lease), the condition of the asset, and how the asset is being used in the course of business. The purchaser will likely wish to examine documents related to the personal property such as leases, purchase and sale contracts, and appraisals so that each asset to be transferred can be fully evaluated as part of the process of purchasing the business.
In addition, an informed purchaser will want to get the seller on the record that no environmental hazards exist in relation to any of the real or personal property being transferred. Has there ever been any environmental issues related to the real property? Are hazardous materials being stored? Have any notices been received from regulatory authorities related to the condition of the property? Even if the possibility of environmental liabilities seems remote, if such liability occurs, the costs involved could be astronomical. These questions should always be asked, so a clear record is established that the seller is transferring property that has a clean bill of health in terms of the environment.
My next blog post will continue to discuss due diligence.
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