COMMERCIAL PROPERTY DUE DILIGENCE LIST

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Title Review

1. Study preliminary title report, and make sure all non-recurring liens and unreasonable encumbrances and easements are eliminated prior to closing.  Better to “over-request” removal of questionable items.

2. Get confirmation from title officer in writing.

3. Have the property and each and every easement mapped by the title company.

4. Have legal review all underlying legal documents. Get confirmation from title that the condition of the title will be in the condition you want on the final title insurance policy.

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Environmental

1. Check Geo Tracker at https://geotracker.waterboards.ca.gov/

2. Check NETR Online https://environmental.netronline.com/

3. Phase I environmental inspection ?

4. If necessary Phase II intrusive inspection, based on recommendation of Phase I inspector.

 

Physical Inspection

1. Thorough physical inspection of the Property either by knowledgeable persons or licensed contractors.

2. Thorough roof inspection. Most roofs are thrashed and need attention.

3. Review use of property by neighbors or public and be thoughtful of potential prescriptive easements rights of way.

 

Government Reviews

1. Visit to all relevant governmental authorities, including the applicable City. Talk to building, zoning, planning, business license and code enforcement departments. Make sure there are no outstanding issues or problems.

2. View every document in the governmental files usually by micro-fish or computer screen. 

3. Look at all prior and historical business licenses and uses.

4. Look for any clues that show a negative indication or issues that need to be investigated i. e. prior dry cleaner, gas station, and other environmental risks.

5. Pay special attention to uses allowable under current zoning. Make note of any existing non-conforming uses.

 

Deed Review

Review deed to confirm it is appropriate in scope and contains proper legal description.

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Timelines

1. Establish calendar and follow time lines on the purchase and sale agreement carefully

2. Observe deadlines for contingencies, closing dates and/or performance obligations under the PSA. 

 

Leases and Tenants

1. Evaluate all tenancies affecting the property.

2. Read all leases and lease amendments immediately upon execution of PSA or before if available.

3. Obtain estoppels from each tenant acknowledging the terms of the lease and the current status of the lease including rent and security deposits. If not possible, obtain Seller estoppels.

4. Speak with each tenant as to their business to get an indication of their contentedness with the property, the performance of their business, and the likelihood that they would renew or extend their lease and at what rents.

 

Insurance

1. Immediately obtain a quote for insurance for the property, so that you are prepared to bind insurance at closing.

2. Minimally obtain an independent Lessor’s risk liability policy separate from any insurance required to be maintained by the tenant. If landlord is required to maintain building coverage, obtain that quote as well.

 

Neighborhood

1. Always study the neighborhood in which the property is located. Drive by the property numerous times and at different time of the day during the due diligence period.

 

ADA

Evaluate Americans with Disability Act (ADA) risks and costs to comply.

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Entity/Holding Structure

1. If necessary, form new LLC

2. Obtain EIN

3. Establish Bank Account

4. Prepare Operating Agreement

 

Closing Statement

1. Review closing statement to ensure proper credits and debits. Review escrow/title charges and costs to ensure reasonable.

 

Documents to Request or Locate

1. The most recent title policy or title commitment on the property in the possession or control of seller together with all related documents.

2. The most recent ALTA survey and topographic study for the property and a copy of the construction blueprints, engineering plans and as-built drawings in the possession or control of seller.

3. Legal description of the property.

4. Zoning Compliance Certificate for the property and all zoning approvals (including variances and any pending applications).

5. Declaration of covenants, conditions, restrictions, reservations and easements for the property.

6. Seller’s third-party engineering, environmental reports (including but not limited to Phase I and Phase II reports, NFR letters, mold abatement reports and underground storage tank testing and closure reports), appraisals, soil tests, boring reports, foundation reports (logs of pilings), termite or radon studies.

7. A true, correct and complete copy of each written lease and each guaranty (together with any amendments), and a certification that there are no oral leases or oral understandings, if any.

8. An accounting of all rent and other income, common area maintenance, security deposits and real estate tax contributions paid by any tenant at the property, including, without limitation, a certified rent roll, showing current rent, previous rent if applicable, delinquencies, security deposits, years of occupancy, lease commencement date and lease termination date.

9. All security deposits and any other amounts to which any tenant, vendor, or any other party may be entitled.

10. A copy of the last three years’ real estate tax bills, including special assessments or incentives, copies of all tax protests, related correspondence and protest results for the property and copies of the prior two years’ utility bills for the property.

11. A true, correct and complete copy of each written service contract (together with amendments thereto, if any) and a true, correct and complete written summary of each oral service contract, together with copies of any and all other contracts and agreements relating to the operation, maintenance and repair of the property.

12. An accounting of all income and expenses related to the property, including collection reports and tax statements for the last three years.

13. A list of all personal property, if any, owned by the seller, located at the property, and used or useful in connection with its operation and maintenance.

14. A list of all permits, partial certificates of occupancy, certificates of occupancy, warranties, government notices, special assessments, code violations and unexpired guaranties and copies of same in seller’s possession or control.

15. A copy of existing insurance policies and certificates and any pending claims against the property.

16. A schedule of pending litigation, if any, affecting the property or seller’s ability to convey the property.

17. Any and all other matters as purchaser may deem reasonably necessary to satisfy itself, in its sole discretion, concerning the property and the status of the property’s title.

 

Post Closing Matters

Transfer all utilities to new owner’s name