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What does due diligence involve in commercial real estate?

On Behalf of | Aug 27, 2020 | Real Estate Law

Before you make any significant real estate purchase, you should perform your due diligence. In other words, you should look into the property you plan to buy to see if there are any problems that could cause you grief in the future.

If you have ever bought residential real estate, you already have an idea of what the due diligence process looks like. However, when you purchase commercial real estate, there are additional concerns. As a result, the due diligence process can look a little different.

1. Obtain seller disclosure

The seller of a commercial property must disclose any known problems or issues, just as the seller of residential property would. However, in addition to physical problems with the property itself, you must also look at documents such as service agreements, historical operating statements and capital improvement schedules.

2. Cross-check data

Do not rely entirely on information that you receive from the seller or the real estate broker. Check all information against public records to confirm everything, including the current use of the building, its zoning, its square footage and the size of the entire lot. If you notice any discrepancies, do some detective work to find out what is behind it. If you cannot confirm a piece of information, do not give credence to it.

3. Gather information on tenants

When you purchase commercial property, there may be tenants already occupying it, which is less common with the purchase of a residential property. With the purchase of the property, you also assume responsibility for the legal agreements between the tenants and the current landlord, so be sure to review these carefully.