Encyclopedia
Due diligence
The checking a buyer or tenant does before committing, such as title, zoning, building condition, environmental and financial review.
For example: A buyer of an industrial unit uses the subject period to review strata documents and get an inspection. (Illustration only, not a real deal.)
Official source: Land Title and Survey Authority of BC
Example only, not a real client. Say you are buying a small office building. During due diligence, the lease review turns up a renewal option at a fixed low rent for the largest tenant, and the building report flags a roof near the end of its life. You go back to the seller before removing subjects and agree a lower price that reflects both.
What I’d tell a friend
Use the due diligence period to find surprises while you can still act on them. After you remove subjects, they are yours.
Why it matters to you
It's your chance to find problems before you're committed. What you skip here, you usually own afterward.
How to use it in your deal
Buyers should start with a checklist and a timeline, then line up the lawyer, inspector, environmental consultant, appraiser and lender before the offer is accepted. Ask for documents early: leases, rent roll, operating statements, tax notices, permits, reports and service contracts.
Pull the title and charges from the LTSA, check zoning with the city, and review environmental records. If anything surprises you, use the subject period to renegotiate or walk away. Sellers should assemble a data room before listing, since quick, complete answers keep buyers calm.
Tenants have their own version: check zoning permits your use, the building's condition, and the landlord's title before signing a lease. Lenders run parallel checks and may require reports.
Mistakes I see
Too short a subject period. Starting reports late. Taking the seller's summary as fact. Not reading every lease. Waiving subjects to win a deal without knowing what you're giving up.
In BC and Vancouver
BC's contract and conveyancing practice relies on subject clauses. The LTSA provides title searches; municipalities provide zoning; the province keeps the Site Registry for environmental records.
Official sources: Land Title and Survey Authority of BC · Site remediation (Government of BC) · BC Financial Services Authority
What to review
Most buyers review leases and the rent roll, operating statements, building condition, environmental reports, zoning, permits and title. Lenders often run their own checks too, such as an appraisal.
Plan the review so the most important items are checked first. If a lease or environmental problem would end the deal for you, find that out early.
Turning findings into terms
A problem you find can become a price change, a credit at closing, a holdback or a repair the seller completes before closing.
If something serious turns up and your subjects allow it, you can walk away. Agree in advance how and when you will give notice.
Your subject period, in order
Subject periods go fast. This is the order I work in so nothing important is left for the last day. General information, not legal advice; your lawyer drafts the actual terms.
- Day 1: one written document request. Leases and every amendment, the rent roll, two or three years of operating statements, the property tax and assessment notices, utility bills, service contracts, insurance, any building or environmental reports, and for a strata lot the strata documents and minutes.
- Days 1 to 5: leases against the rent roll. Check each tenant’s rent, term, renewal options, deposits and any free rent against the actual lease. Then check the bank deposits or ledger, so you know the rent is collected, not just billed.
- Days 3 to 10: additional rent. Compare what tenants pay in operating costs and taxes to what the building actually spends. Check that recoveries follow each lease.
- In the offer: a rent roll warranty. Attach the rent roll and have the seller confirm it is accurate, with wording your lawyer sets up to survive closing.
- As a subject: signed estoppels from the main tenants. Each key tenant confirms in writing their rent, term, deposit, options and that there are no disputes. If a tenant’s answer doesn’t match the rent roll, you find out before you go firm.
- Building, environmental, zoning and financing run in parallel. Order inspections early, since reports take time.
- Before removing subjects: list anything you found, and decide whether it means a price change, a repair credit, more time or walking away. Ask for any extension in writing before the deadline.
Questions to ask before you sign
- How long is the subject period?
- What documents will the seller give?
- Which reports do I need?
- Who is on my team?
- What's my walk-away condition?
Keep reading
Related terms: Subject clause, Title search, Building condition assessment, Data room
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.