Waiver Date: Top 10 Tips For Effectively Managing Your Conditional Period (Part 2 of 2)

Welcome to Part 2 of our Waiver Date series! If you haven’t read Part 1, you can do so here, or you can keep reading as the first section provides a brief overview of the topics covered in Part 1.

In Part 1, we provided a description of the Waiver Date and Conditional Period and explained the importance of each and why it’s essential to be aware of your waiver date. We’ll briefly recap that discussion and then discuss in greater detail how you can better manage your conditional period to be as prepared as possible for your waiver date.

Part 1 Waiver Date Recap

When making a commercial real estate purchase or investment, most dates are important but one is more important than the others—the Waiver Date. The Waiver Date is the date by which you must decide whether or not you want to proceed with the purchase. The period between the signing of the initial agreement and the Waiver Date is referred to as the Conditional Period or the Buyer's Condition and it represents the amount of time you have to perform your due diligence and any relative testing required before making the decision to purchase.

Your contract should speak specifically to items you will need from the seller (deliverables) and the exact dates by which you will need to receive those items. The seller is legally required to disclose any and all information known to them to the buyer, who then has the right to inspect the items and the property at their own expense to determine if it meets their requirements.

The Waiver Date is the date by which the buyer will either waive conditions to the offer, indicating that he or she wants to proceed with the deal, or reject the deal or ask for an extension of the Waiver Date (it is up to the discretion of the seller whether or not to extend the Waiver Date).

If you waive your conditions, you have now committed yourself to the deal. Once you’ve agreed to the contract and waived all conditions you are now committed financially, legally, and ethically to proceed with the purchase.

This is why it is so important to negotiate a favourable waiver date and conditional period. Of course, buyers will always try to negotiate a conditional period that is as long as possible whereas the seller is inclined to want to see a shorter period. Conditional periods can be any amount of time agreed upon by the parties to the contract but are generally around 45 business days. This is simply a rule of thumb, the length of your conditional period will depend entirely on the wishes of the seller and how hard you negotiate.

Tips For Effectively Managing Your Conditional Period

We advise using all of the following tips to form your strategy for managing your conditional period.

Tip #1: Have your due diligence team assembled and ready to go before your conditional period starts.

This is essential. If you’re not ready to start when the clock starts ticking, you’re already behind in a project where time is a scarce resource. If your team isn’t assembled and ready to start at the beginning of your conditional period, your chances of making the Waiver Date are slim.

If you’re curious as to who to have on your team, it depends on a lot of factors. For us, we engage a lawyer, lender, environmental engineer, and structural inspectors as a minimum.

Tip #2: Take very good notes.

Ensure to take thorough notes during your early drive-bys and tours. Even the smallest observance can make a big impact down the line. For instance, if you notice that the roof looks a little dishevelled then a roof inspection will definitely be required, which will need to be allotted for in your conditional period. Perhaps you notice a gas station across the street, or remnants of one, which undoubtedly means you’ll not only need a Phase 1 inspection, but a Phase 2 environmental inspection. These types of inspection can sometimes take months to complete, so it’s better to know upfront you’ll need to negotiate for extra time rather than trying to justify the extra time to the seller after the contract has already been signed.

Tip #3: Understand your financing timeline.

There are myriad issues to consider when making a commercial real estate investment, but the most important is, how are you going to pay for it? If you’re lucky enough to be able to pay cash, you can ignore this tip, but if you’re like the rest of us, financing should be your top priority.

Make sure to discuss your lender’s requirements upfront so that there are no surprises and nothing holding up the process. Once you know your lender’s requirements and what you’ll need to submit and by when, you can prepare ahead of time and ensure there’s enough time for approvals in the Conditional Period.

Almost all lenders and absolutely CMHC will require you to submit an application prior to approval. This process can take longer than you might think, don’t be caught unawares.

Tip #4: Avoid setting waiver dates on Mondays and Fridays.

Tip #5: Use checklists whenever possible.

At MCRE, we’ve completed hundreds of commercial real estate deals and we always, without fail, will still use a checklist when evaluating a potential investment. Checklists are a simple yet incredible tool for staying on track and ensuring no steps are missed. Take it from those who have been there—one missing piece of information can set the whole process back. To effectively manage your conditional period, checklists are an absolute necessity.

Not sure what should be on your checklist? Don’t worry, we’ve done the work for you! Click here to download our checklists ebook

Tip #6: Prioritize your to-dos.

Not all checklist items are created equal! Establish which to-dos on your list will take the longest, most likely securing financing, and then work backwards. For instance, if your lender advises approval will take about six weeks, use that date as your potential waiver date and start plugging in all the other items you’ll need to complete within that timeframe.

Tip #7: Be efficient, but not imprudent.

There is a very real pressure on the buyer to complete a substantial amount of tests and due diligence rather quickly, but resist the urge to cut corners. As an example, we’ll share a personal experience from one of our very first investments. Our conditional period was set for 30 days and we knew our Phase 1 would take at least two to three weeks. We scheduled Phase 1 to begin immediately, before we had received all the deliverables from the seller. Weren’t we surprised when one week later we received paperwork from the seller that put the deal in jeopardy.

On the one hand, we just spent $2,000 on an environmental report to ensure we met our waiver date but had we waited until we had all the information we may not have proceeded with the environmental report at all; however, holding off until we received all documents would certainly have made it impossible to make our waiver date.

As a commercial investor, you’ll be faced with choices like this all the time. Our recommendation is to treat the process like a puzzle: Where one piece goes on where the other pieces are going and no piece acts alone, everything works together. For expensive tests or reports, try to schedule them as far back in the process as possible and make sure a specific date is included in the contract as to when the seller needs to provide all additional information.

Tip #8: Be specific and get it in writing.

As we mentioned in Tip #7, always ensure the contract contains a specific date by which the seller must provide all requested information. In addition, make sure that the contract states the Conditional Period will not commence until the buyer has received all requested information from the seller. We’ve been involved in countless deals where information we requested of the seller comes in drips and drabs. There’s no problem with this as long as the seller understands that the more they delay, the further back the Waiver Date is pushed.

Our pro tip for this is to try and avoid setting an exact waiver date if possible. Generally, we recommend wording the contract along the lines of something like this:

Waiver Date to be 45 business days from acknowledged receipt for all the Deliverables.

Here’s an additional pro tip: Always specify business days, weekends should not be included in your conditional period.

Tip #9: Suggest breaking the waiver date into multiple parts.

On occasion, you will run into a seller who will make it difficult for you to agree upon a reasonable conditional period. In these cases, we like to suggest breaking the process into several Waiver Dates. For instance, if everything is okay earlier in the process, I might waive my inspection condition and then waive my environmental condition once all tests are completed. We find sellers to be more amenable to longer timeframes if they feel as though things are being accomplished and the time used wisely.

Our process is to be as upfront and transparent as possible. When negotiating the Conditional Period, we always share our schedule with the seller upfront as some expect buyers to be purposefully stalling or delaying the process and are naturally suspicious of longer conditional periods. If we’re asking for 45 or 60 days, we always have a schedule to support that timeline and if the seller wishes to debate our analysis, we’re always happy to listen and compromise, if necessary.

Tip #10: Be relentless in your follow-up.

Buying a commercial investment property is very exciting, but it’s also very stressful. You will have a lot of balls in the air you’ll need to juggle and keeping track of everything can be challenging; however, it’s essential you don’t miss any important dates as this could jeopardize the whole deal. To stay organized, we recommend being relentless in following up on the activities you have going on. Don’t go more than two days without checking on a particular item, if you haven’t heard anything, oftentimes that means it’s simply stalled at somebody’s desk.

Final Word on Waiver Dates

If you’ve finished reading this blog post, congratulations! You now have valuable knowledge that most commercial investors have to learn the hard way, through experience. If you’re looking for more information, don’t forget to check out Part 1 of this series.

In our experience, effectively managing your conditional period and meeting your waiver date is an onerous, time-consuming endeavour and, quite frankly, very stressful. However, by using the tips above and ensuring you have a due diligence team of competent professionals you can trust, you can relieve a lot of the stress associated with the process and substantially increase your chances of a successful investment.