High Demand Industrial Locations – Importance of Regulatory Due Diligence

By ‘high demand’ we can define, when the number of enquiries are much more than the number of plots available and also there are very few defunct units, in a particular industrial area.

For example, in an industrial area with a full fledged OEM factory, it is a natural outcome that the suppliers will be located within a few kilometers. This also makes it an attractive location for another OEM to establish which then gives the supplier two potential customers, and so on. Now this location will be a ‘high demand area in decade’ and then on, there will be hardly any first allotments to companies.

With these conditions, whenever a company is buying a previously utilized property, diligent work has to be done pre-acquisition to eliminate all risks. 

The effort is crucial considering the amount of financing and logistics required to install machinery and operate a factory.

A legal due diligence is usually part of acquisitions and legal teams work to ensure the title is completely clear and free of any encumbrances. Along with it, the property would have previously engaged with numerous government authorities and bodies for approvals and permissions. Many of the regulatory approvals may have expired in a non-operational facility while almost all of them would be tailored for the operations of the previous occupant. 

It is useful to gauge the regulatory status of such properties by taking stock of the history of the site starting from allotment, building permissions, environmental consents, and so on and so forth. This will bring to light any non-compliance on the property, which may create adverse conditions for the incoming operator. 

It must be said that there are cases of non-compliance which are unintentional from the side of the present owner/occupier. Once a factory stops working and staff has moved out, gaps can be created automatically. Once this work is complete, the prospective buyer can add this data to the other due diligence activities such as legal, structural, soil, financial and local.

This entire study record can also serve as a tremendous resource for reference during occupancy or some time much later in future, when the operator may want to exit the site.