Commercial Property Due Diligence Checklist

Why due diligence matters

After a contract is signed, the buyer usually has a limited time to look into the property and can often step away if something serious turns up. Missing a problem now can cost far more later.

Legal and title

Order a title search and a survey. Check who owns the property, what claims, liens or easements affect it, and whether the boundaries match the description. Read the zoning rules and confirm your intended use is allowed.

• Title commitment and title insurance
• Survey of the boundaries and any encroachments
• Zoning, permits and certificates of occupancy

Income and leases

Compare what the seller says with what the paper shows.

• The rent roll and a copy of every lease
• Two or three years of income and expense statements
• Tenant payment history and any disputes
• Who pays taxes, insurance and upkeep under each lease

Physical condition

Hire qualified inspectors for the building, the roof, heating and cooling, plumbing, electrical and the parking and drainage. Ask for a repair estimate.

Environmental

A Phase I environmental site assessment checks the past use of the site for contamination risks. It is often required by lenders, especially for industrial, gas station and dry cleaning sites.

Money

Check the property tax bill and how a sale may change it, the insurance quote and the cost of any needed repairs. Confirm your loan terms and that the numbers still work.

Before you close

Make sure every item is answered in writing, the closing figures match your estimate and all agreed repairs or credits are in the contract.