Commercial Property Due Diligence: A 10-Point Checklist

Commercial real estate due diligence is the process of verifying everything a seller or landlord has represented about a property before you commit. What you don't verify before you sign becomes your problem after you sign. Here are ten areas that deserve attention in any commercial real estate transaction.

The 10-point checklist

1. Zoning and permitted use. Confirm that the property's zoning allows your intended use. Even if a prior tenant used the space similarly, zoning compliance is your responsibility as the new occupant. Municipalities can and do enforce zoning changes.
2. Title and encumbrances. A title search reveals liens, easements, rights-of-way, and other encumbrances that could affect your use of the property or your ability to resell it. Don't skip the title insurance.
3. Environmental assessment. Phase I Environmental Site Assessment is standard practice for any commercial acquisition or longer-term lease. Phase I reviews historical use and identifies potential contamination risk. Phase II testing involves actual soil and groundwater sampling and is triggered when Phase I findings warrant.
4. Structural and mechanical inspection. Engage a commercial property inspector to evaluate the building structure, roof, HVAC systems, plumbing, and electrical. Deferred maintenance and aging systems represent capital expenditures you'll either pay for through CAM charges or be asked to address.
5. Survey. A current ALTA/NSPS survey confirms property boundaries, identifies encroachments, and reveals easements not apparent in the title work. Essential for acquisitions; advisable for long-term leases.
6. Operating expense history. Request at least three years of operating expense statements for the property. Understand year-over-year variability and identify any unusual one-time expenses. CAM charges can differ significantly from one year to the next.
7. Lease abstracts (for investment acquisitions). If you're buying a tenant-occupied property, abstract all in-place leases — rent schedule, term, options, assignment rights, co-tenancy provisions, and any side agreements.
8. Financial analysis of the current tenants. For investment properties, the creditworthiness of in-place tenants is as important as the property itself. Request financials on any tenant representing more than 15–20% of income.
9. Utilities and infrastructure. Confirm that utilities (power, gas, water, sewer) have adequate capacity for your intended use. Industrial users with significant power requirements should verify transformer capacity and utility costs.
10. Permits and code compliance. Confirm that any previous build-out was completed with proper permits and passed inspections. Unpermitted work creates liability and may require demolition or remediation at your cost.

Budget time and resources accordingly

Comprehensive due diligence takes time — typically 30–60 days for a commercial acquisition. The costs vary but budget $5,000–$15,000 for a standard commercial due diligence package (title, Phase I, survey, inspection, legal review). That investment is cheap insurance relative to the cost of discovering a serious problem after closing.