Due Diligence in Commercial Real Estate Transactions

Daisy Ratnasari

The acquisition of commercial real estate is often riddled with complex issues. Before closing on any purchase, a buyer needs to be thorough in his/her due diligence. It is imperative that the buyer learn as much as he/she can about the property, existing conditions and restrictions, title issues, zoning ordinances, tenants, existing leases and environmental hazards. Below is a list of 20 items that should be part of any due diligence investigation:

1. Identify any underground or above ground storage tanks;

2. Determine if any materials or substances have been released or disposed of on the property;

3. Determine if asbestos has ever been located on the property; if so, obtain information regarding the removal/disposal process;

4. Obtain test results for radon and any remediation;

5. Obtain test results for drinking water;

6. Determine whether lead paint issues exist;

7. Identify record owners of the property and trace past record owners to insure chain of title;

8. Review leases of tenants;

9. Obtain from seller any plans, surveys or diagrams regarding the property;

10. Investigate property’s compliance with zoning and land use regulations;

11. Conduct physical inspection of the property; obtain copies of any inspection or engineers’ reports from seller;

12. Get up to date rent roll;

13. Obtain copies of last five years property tax bills;

14. Determine necessity for termite and mold inspections;

15. Obtain any service contracts;

16. Evaluate insurance needs;

17. Obtain all necessary approvals and permits for intended use of the property;

18. Review copies of title insurance policies from seller

19. Obtain title commitment/Order judgment and lien searches

20. Have legal representation throughout the transaction.

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