Advice and Opinion

What is the role that the commercial property broker plays in the due diligence process between the purchaser and seller?

Discussing this matter recently as the subject in a four episode series for those interested in commercial property acquisitions, Jason Gregoriades of the Rawson Property Group’s commercial franchise division, made it clear that the broker, not being party to the contractual agreement, is under no obligation whatsoever to perform the due diligence investigation on behalf of the purchaser – nor should he be expected to source the information as promised by the seller to the purchaser.

“This understanding,” said Gregoriades, “is important to grasp but clients can often be unaware of the distinction of roles. The more efficient and popular the broker is, the more the seller and buyer may want the broker to conduct such matters – but it must be made clear that this is not part of his legal duties.”

The seller, added Gregoriades, can indeed forward information and documents to the purchaser via the broker, and this is a fairly common practice, but the total responsibility for the due diligence exercise remains the seller’s obligation and he is expected to do this by himself and at his own expense.

In certain cases, said Gregoriades, the purchaser may suspect that the information provided by the seller is inadequate or inaccurate. Should this occur it is up to the purchaser to deal with the seller directly to resolve the matter and the broker cannot be held liable, although he may and often does play an intermediary role in advising sellers and purchasers of their responsibilities.

What is the situation if the broker, although, as explained, not party to the agreement, acting independently or in connivance with the seller, withholds information or allows inaccurate information to be handed over?

In these cases, said Gregoriades, he is quite clearly an obstacle to the due diligence process being done honestly and thoroughly and he can in South African law be held liable on this count. This, too, is an important principle that has to be understood.

Stressing again the importance of the due diligence exercise in many property transactions, Gregoriades said that it will pay the seller and purchaser to ensure that this is clearly and timeously carried out that there can be no comebacks later on. Where the exercise is not done thoroughly, he said, and loopholes and omissions are later discovered, recrimination and arguments can follow.