Due Diligence

We’ve created a whole page just on this portion of the process, because it’s that important.  If not done right, you stand to lose your earnest money, or be forced to close, and own a property that you can’t use for your car wash.  

Most cities now require some form of permitting as a method of controlling and implementing citywide objectives in infrastructure, and planned development (“PD”).  This is usually achieved with things such as:

1. Zoning
2. Special use permits
3. Building Permits
4. PD overlays.   

The city cannot change the existing zoning of property that they do not own, so in order to achieve future planning objectives, they might create a PD overlay on top of an existing property area, which is much like another zoning layer with its own set of regulations, use restrictions, etc.     

So even though a property might be zoned for a car wash, a PD overlay may have restrictions that could disallow the use, or control the end product by now requiring a special use permit, along with architectural restrictions – how the building should look i.e. how much masonry, glass, landscaping etc.   

In each of the above 4 methods of city development control, you would have to go through a process of approval, which takes both time and money.

Your contract must include time for you to obtain this approval during the feasibility/inspection period, so that if your application is denied, then you still have the right to terminate the contract and receive your earnest money back.

So, your due diligence will include:

1. PROPERTY FINANCING APPROVAL: Your bank will typically require the following due diligence be performed, and usually will order this on your behalf.  This an upfront cost to you.

1. Order an appraisal of the property.
2. Order a Phase I Environmental Assessment on the property, and that’s if the seller doesn’t have a recent report.  If this Phase I uncovers any contamination concern, then a Phase II will be required, and this is a more intrusive and thorough investigation of the property that would include sub surface soil testing, groundwater sampling and testing, mold testing etc.  This can be expensive so make sure you get several quotes before allowing the bank to order for you.
3. Building Permit:   If it’s an SBA loan, the lender will require you to obtain a building permit prior to closing on the property.  See Building Permit below.

2. CITY APPROVALS: If the property is in an outlying area outside of a city jurisdiction, you could have absolutely no restrictions at all.  However, based on the site criteria for a car wash, it’s more likely that it will be in a city area.

First you will need to call or go visit the Planning & Zoning department at the city that the property is located in to confirm what (if any) zoning or other restrictions there are on the land that might restrict you from building and using the property for a car wash.   

If there are no restrictions then the next step will be to get a building permit.

1. Building Permit:  While this varies by city, building permit applications typically have a checklist of items that accompany the application, such as a full set of plans that include architectural, site plan, electrical, mechanical, plumbing, landscaping etc. There may be several rounds of reviews and changes, but once approved – you are now ready to move forward on closing on the land, and to begin construction.
2. Zoning/Special Use Permit (Or Conditional Use Permit)

If you are working with a car wash developer, they can sometimes assist you in this process, or your engineer might offer this service.  usually involves the following steps:  

1. Conceptual drawings/renderings of a car wash that you can initially present to give the city an idea of the end product.
2. Predevelopment Meeting: Set up a predevelopment meeting with P&Z staff (planning & zoning department staff) so that you can presenting your car wash concept and get a feel from them if they are in support of it or not.  If they are not, it will be important to work with them on overcoming their objections.
3. Formal Application: If you feel you have satisfied the major objections from the staff, then submit the full application form and required supporting site plans/documents.  P&Z will then do a review and request changes if needed.  (Note: These submittal requirements differ by city and you can usually find the application and requirements on the city website – under planning & zoning, or permits.)

      1. P&Z Commission Meeting:  Once all review changes have been done, the application is then presented for approval at a P&Z Commission meeting, which is a public city meeting.
      2. City Council Meeting:  If approved by P&Z, and depending on requirement, it is next scheduled and presented at the next City Council meeting.
      3. Close on Property. If approved by City Council, you can then proceed to close the purchase on the property – unless there are any other due diligence items that may conflict, for example, an SBA loan that requires a Building Permit first.
      4. Building Permit.  See above.

TITLE COMMITMENT REVIEW:  During this time the title company will research and provide a title commitment for title insurance on the property.  This usually contains (under Schedule B) a list of all the items that the title company will exclude from coverage under this policy, and this contains things such as existing easements, restrictions, liens and other material items that are important, and that affect the property.  These could seriously affect your use of the property so you are highly advised to have this entire Title Commitment reviewed by an attorney.  

IN CLOSING: It’s critical to make sure you are watching the day counts of the Inspection Period that’s provided in the contract, and don’t let it expire on you!  Once it expires the contract is hard, and you will be required to close (obviously if there are no other contingencies).


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