You have the right to investigate. Maybe.

Due Diligence Condition

The clause that protects you. If it’s drafted properly.

You have time to investigate. Or so it feels.

You’ve found the warehouse. The numbers work. The location is right. The lease looks fine at first glance and the contract has a due diligence condition. You guess you have some time to look into everything before you’re locked in. But keep your guard up to avoid a false sense of security.

Some due diligence clauses are deemed unconditional when the deadline expires. For others, the seller might be waiting to terminate if the buyer doesn’t notify satisfaction in time.

A due diligence condition isn’t always a ‘blank cheque’ to investigate anything and exit on any basis. What it lets you do, how to terminate effectively, and whether notice is given correctly within the required time depends on the wording.

Some clauses / sellers allow the ‘buyer’s absolute discretion’ and others may provide tight constraints on termination rights. 21 days is very different to 10. And a notice requirement that mandates a specific written form might require hand delivery, not email.

What the clause actually says, and whether you follow it properly are both critical.

The heading says due diligence. But will it do the heavy lifting?

Due diligence conditions in commercial contracts aren’t standardised. They’re negotiated, and the version that ends up in the contract reflects what was agreed for that specific transaction.

Some buyers assume the clause covers everything but that’s not always true.

A clause limited to planning issues can’t be used on the basis of an environmental finding. A clause that requires you to act reasonably or which lists specific defects or issues can’t be used simply because you found a better warehouse deal. A clause that requires notice in a specific form can’t be satisfied by a phone call or an informal email.

Finding an issue during due diligence doesn’t automatically allow you to act on it. The wording of the due diligence clause controls what’s possible.

What a good due diligence condition actually does

It makes the contract conditional on you or your nominated people completing your investigations and being satisfied with the results by a specified date. If you’re not satisfied, and you give written notice in the required form before the deadline, the contract is terminated and your deposit is returned. If you don’t give notice in time, the condition should remain in place and the seller gets the right to terminate. That’s a reasonable approach to avoid a seller being stuck in a contract with a buyer who can’t make decisions.

Three things determine how much protection you actually have.

Scope what investigations are contemplated, who can do them, and whether you can terminate for any reason or only on specific categories.

Standard whether you can terminate because you weren’t satisfied or only for objective defects of a defined kind or severity. Subjective is more protective. Objective is more restrictive. Do you need to act reasonably?

Mechanics what form notice must take, to whom it must be given, and by when.

A broadly scoped, subjective satisfaction clause is the most protective form. A narrowly scoped, objective standard clause limits both what can be investigated and the threshold that must be met before you can exit.

What a warehouse due diligence investigation needs to cover

Planning and zoning

Confirm the permitted use against the current zoning and any overlay controls. In Queensland, planning schemes can include overlays for flooding, bushfire, heritage, contamination, and infrastructure corridors that affect how a site can be used or developed. Confirm the current use is lawful and understand any constraints on future use before you commit your money.

Environmental risk

Industrial sites may carry environmental risk depending on their history. A site used for manufacturing, vehicle maintenance, or chemical storage may have soil or groundwater contamination that isn’t visible but creates liability for the owner. Environmental remediation costs can be substantial, and they can fall to the landowner if the original ‘polluter’ can’t be identified or located, regardless of when the contamination occurred. Where the history suggests risk, a Phase 1 environmental assessment, and potentially a Phase 2 investigation, may be warranted.

Lease review

Where the warehouse is tenanted long term, the lease review is central. Confirm the lease was validly executed, that the term and options are as described, and that the rent review mechanism is workable. Assignment rights, demolition clauses, make good obligations, and any provisions that weren’t disclosed in the marketing materials are your responsibility once settlement occurs. See our lease section for helpful information.

Structural and compliance condition

Building approvals, fire compliance certification, disability access compliance, and structural integrity may all need to be examined. The as-built condition needs to match the approved plans. Outstanding compliance orders and fire system obligations are liabilities which can land on the buyer.

Services and infrastructure

Electrical capacity, stormwater and drainage, easements, and access rights. For a logistics or manufacturing tenant, electrical capacity is particularly important. Inadequate power infrastructure requires expensive upgrades, and whether those costs fall to the landlord or the tenant depends on the lease.

Warehouse assets carry hidden compliance and environmental risk. An investigation limited to what’s visible misses the categories most likely to produce unexpected liability after settlement.

Where due diligence protection most commonly fails

The clause is too narrow

Depending on price and the market there may be dozens of potential buyers or only you. Some sellers might baulk at including a due diligence clause at all. You may have to cherry pick specific battles and limit due diligence to a couple of key items. Or the agent / seller may have given you information about specific items and wants those excluded from due diligence.

A condition limited to planning matters can’t be used on environmental grounds. A clause covering structural issues only can’t be used on the basis of a lease provision that wasn’t adequately disclosed. If the investigation reveals a concern outside the scope of the condition, you may have no right to act on it, even if the finding matters to you.

The window is too short

Environmental assessments, structural engineering reports, and fire compliance reviews take time. A 10 to 14 day clause may be too short for a warehouse if specialist investigation is warranted. Some councils take 20 days to provide search results. If the investigation can’t be completed in time, you stuck between acting on incomplete information or hoping the seller grants an extension. They might decide to terminate and sell to another buyer instead.

Standards are objective, not subjective

Some clauses let you exit if you’re simply not satisfied. Others require you to prove it. If your clause requires objective defects of a defined standard, a contamination risk without a price tag, or a compliance issue without a formal order, may not be enough to get you out. Even if there is obviously an issue./

Notice not given correctly or in time

A notice addressed to the agent rather than the vendor’s solicitor as specified in the contract. A notice that doesn’t contain the information the clause requires. These errors can lead to the contract becoming unconditional. The deposit is exposed. The finding that justified termination becomes your problem to manage as owner.

Waiting for reports until it’s too late

The most common failure: investigations are ordered at the start of the period, the reports take longer than expected, and the deadline arrives before the full picture is available. Environmental investigations in particular can prompt further inquiry when initial findings raise questions. Build in buffer time. Don’t structure a due diligence strategy that depends on everything arriving on schedule.

Conditions not aligned with each other

Where the contract includes both a due diligence condition and a finance condition, check that the periods are aligned. A finance period that expires before the due diligence period, or a due diligence finding that emerges after the finance condition has lapsed, can leave you exposed to seller termination.

How the conditions work together

In a well-structured contract, the conditions overlap. The due diligence period should be long enough to accommodate the relevant investigations, and should remain live alongside the finance period so that if a due diligence finding affects the valuation or the lender’s view of the asset, there’s still time to act within the finance condition.

A structural finding that affects value, a planning issue that affects permitted use, or an environmental concern that creates a liability may each affect the lender’s security assessment. If the due diligence period has already expired when the lender raises the concern, you can lose the protection you needed at exactly the wrong moment.

How to approach the due diligence condition for a warehouse

Get the drafting right before you sign

Review the due diligence clause before you sign. Check the clause covers planning, environmental, lease, structural, compliance, and services. Confirm whether the standard is subjective or objective. Check the timeframe is realistic for your specific asset. If the clause as drafted doesn’t provide meaningful protection for the risks this asset carries, renegotiate it before you sign.

Start enquiries immediately after you sign

Don’t wait for one report before commissioning the next. Environmental investigations, structural assessments, and fire compliance reviews should all be commissioned as early as possible. Tailor the investigation to the asset. A recently constructed warehouse on a greenfield site has a different priority from one with prior industrial use.

Deadlines require precision

Track the expiry date from the day the contract is signed. If a report is delayed and the deadline is approaching, assess the options early: seek an extension before the period expires, act on the information available, or let it lapse with a clear understanding of what that means. If you need to give notice, give it in writing, in the required form, to the right party, before the deadline. Confirm receipt.

How we work with warehouse buyers

We treat the due diligence condition as the most important protection clause in the contract. We review the scope, the standard, the timeframe, and the notice mechanics before you sign, and we raise any concerns before you’re committed, not after.

We help structure an investigation plan that matches the specific risk profile of the asset, and we monitor the period actively to make sure the condition can be exercised on the basis of complete information.

Before you rely on the due diligence period

The condition only works if it’s broad enough to cover what’s found, if the investigation is conducted thoroughly within the available time, and if the notice mechanics are followed correctly.

A due diligence condition that’s accepted without review, conducted without urgency, or used incorrectly provides an illusion of safety.

If you’re reviewing a contract for a warehouse acquisition and want to make sure the due diligence condition is set up properly, get in touch to book a call before you sign.