Due Diligence in Commercial Real Estate Transactions

Margaret B. Parker

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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