The Definitive Due Diligence Checklist for Commercial Real Estate

While all real estate acquisitions should be subject to meticulous and comprehensive due diligence, Commercial Real Estate can be especially complex, with additional factors such as leases, rent rolls, and tenant estoppels needing special scrutiny. The following checklist highlights the most critical documents and information that due diligence should cover.

A Rundown of Due Diligence for Commercial Real Estate

Due diligence is about knowing all the potential assets and liabilities of the property you are acquiring. It puts the onus on you, the buyer, to know what you are getting into before the transaction closes. Should any undetected problems with the commercial property emerge after closing, they will be your burden to bear.

In addition to the usual items that should be obtained and examined from the seller — such as the current title policy, survey, and legal description of the property — commercial properties have several more elements that should be taken into account.

• Certificate of Zoning Compliance — No property should be built or altered without a Certificate of Zoning Compliance issued by the municipal or county government in which it is located. This ensures that the structure meets all zoning rules and ordinances in the area.
• Declaration of Covenants, Conditions, and Restrictions (CC&R) — If the commercial property is part of a condominium association or other planned community, this document will set forth the rules and guidelines governing all members.
• All Written Leases and Extensions — You should have a clear understanding of the terms and conditions governing the property’s tenants, including whether their leases contain any options to renew or purchase the property. You also want to know the rights and responsibilities of the current landlord under the leases since you will be assuming those rights and obligations at closing.
• An accounting of all rent and other income — You should obtain a certified rent roll that covers at least a 12 month period and that shows the tenant names, the rental period, all rents collected, delinquencies, advance rent payments, and security deposits. You also want information regarding common area maintenance fees and real estate tax contributions paid by the tenant(s) (if the property is a double or triple net lease).
• Tenant Estoppel Certificate — This legally binding document is a promise by the tenant that claims about the lease, rent, security deposit, and other aspects of the relationship between the tenant and landlord are true. Also, it acts a certified statement from the tenant about any disputes that they have with the present landlord (since those disputes will fall in your lap to resolve at closing once the leases are assigned to you).
• Real Estate Tax Bills — You should review the real estate tax bills from the previous years, including any special assessments or incentives. It is also very important to get an estimate of what your new tax bill will be since the property will likely be re-assessed after closing. One way to gather that information is by contacting the property appraiser or tax collector’s office for the county where the property is located.

This list is far from exhaustive, as each commercial real estate transaction has unique circumstances and factors to consider. That is why it pays to hire real estate attorneys who have experience and expertise in guiding clients through the due diligence process.

Work with Experts in Commercial Real Estate Due Diligence

No matter what you have in mind for your commercial real estate acquisition, you must ensure that your due diligence process covers all your bases. Jurado & Farshchian, P.L. has years of experience helping buyers of commercial real estate navigate through the critical due diligence process. We will provide honest and plainspoken guidance throughout the process, ensuring that your due diligence is conducted with the utmost meticulousness and effectiveness. To get the critical assistance you need for effective due diligence, contact me at (305) 921–0440 or email me directly at [email protected] to get started.

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