Negotiating Access Rights in a Commercial Real Estate Purchase Agreement
In a commercial real estate transaction, the Purchase and Sale Agreement (PSA) typically grants the buyer the right to access the property during a defined due diligence period. This period allows the buyer to inspect the property’s condition and discover any potential defects. However, because these inspections can be disruptive to the property, its operations, and existing tenants, it is important that the buyer’s access rights be structured in a way that balances the buyer’s need for a thorough investigation with the seller’s interest in minimizing disruption and protecting the property from potential damage or liability. Important considerations to keep in mind when negotiating these access rights include the following:
Insurance Requirements
It is important that any party entering the property—whether the buyer, its agents, or contractors—provides evidence of adequate insurance, as this helps protect the property from potential damage during inspections or testing. To address this, a PSA will frequently specify the minimum coverage limits required, detail the types of insurance needed (such as general liability, property damage, and workers’ compensation), and outline the process for delivering proof of insurance, for example by requiring certificates of insurance prior to access.
Indemnity Provisions
Indemnity clauses serve to protect the seller by shifting responsibility for any damage caused by the buyer’s access activities to the buyer, ensuring that the seller is not held liable for any damage caused by the buyer or the buyer’s contractors or agents. Buyers will frequently seek to exclude from such indemnity obligation damage resulting solely from the discovery of pre-existing conditions (such as environmental contamination) rather than from the buyer’s actions.
Notice Requirements and Coordination
Advance notice before accessing the property is a practical measure to protect the seller’s operational interests, particularly when tenants are present. The PSA will often establish a specific notice period—typically 24 to 48 hours—and clearly specify acceptable methods for delivering notice, such as via email, certified mail, or a phone call and may designate a contact person, such as a property manager, to coordinate access and ensure that visits are scheduled at times that minimize disruption to the seller’s and any tenant’s operations.
Tenant Interviews
Tenant interviews can provide useful insights into the property’s operational status and potential issues, though they may also affect tenant relationships. To manage this, the PSA should state whether the buyer has the right to conduct tenant interviews during the due diligence period and whether the seller is permitted to be present during these interviews to address tenant concerns.
Permitted Testing and Inspections
Testing is a key component of the investigation process for identifying issues such as environmental hazards or structural deficiencies, and it should be conducted in a manner that minimizes potential damage to the property. The PSA will often grant the buyer broad rights to perform noninvasive or non-destructive testing (such as visual inspections or thermal imaging), while specifying that any invasive or destructive testing (for example, borings, drillings, or sampling) is subject to the seller’s prior consent. If the buyer anticipates the need for invasive testing—especially in cases where known issues exist—the agreement may include advance approval of those specific tests.
Balancing Buyer and Seller Interests
Negotiating access rights during the due diligence period involves balancing the buyer’s need to evaluate the property with the seller’s interest in protecting their asset and minimizing disruption to tenants. With mutually agreed-upon terms in place, both parties can proceed with greater confidence, supporting a smoother due diligence process and ultimately a successful closing of the transaction.
