Mike Lang Real Estate — Making Your Real Estate Deals Stronger Week 3
Buying a Commercial Building? Here’s My Due Diligence Checklist
The purchase agreement is signed. The earnest money is in. Everyone shakes hands and moves on to the next thing — the financing call, the architect walkthrough, the conversation about what goes on the sign out front.
Meanwhile, the clock is running.
The due diligence period is the most important phase of a commercial real estate transaction, and it’s the one most buyers treat as a formality. You’ve already decided you want the building. The inspection feels like paperwork standing between you and the closing table. That’s exactly when expensive surprises happen — not because buyers are careless, but because they don’t have a systematic way to work through everything that matters before the contingency period expires.
One thing worth saying up front: the seller’s representations and warranties, and the documents the seller hands over, are not a substitute for your own diligence. Reps and warranties give you a legal remedy after the fact if something turns out to be false. Diligence is what tells you, before you close, whether the property actually is what you think it is. The goal isn’t paperwork compliance — it’s making sure you’re getting the deal you actually signed up for.
What follows is the checklist I use. Save it. The items here are the ones that actually kill deals, delay closings, or create problems you’re still managing two years after you own the building.
Environmental
Start here, because environmental issues are the ones with the longest tail. A Phase I Environmental Site Assessment is standard on most commercial transactions, and most buyers order one. Fewer buyers actually read it carefully.
The section that matters most is Recognized Environmental Conditions — the Phase I’s formal term for documented or suspected contamination from current or historical use of the property, adjacent properties, or nearby operations. A dry cleaner next door twenty years ago. A fuel storage tank that was removed but never tested. Underground utility corridors with unknown history. These are the items that lead to a Phase II — actual soil and groundwater testing — and potentially to remediation costs that dwarf the purchase price adjustment you thought you were getting.
Also read the data gaps section, and don’t skip past it. Every Phase I will identify gaps — historical records that couldn’t be located, prior uses that couldn’t be confirmed, time periods with no available documentation. A data gap isn’t automatically a problem, but an environmental professional has to assess whether the gap is significant enough to affect the conclusions of the report. A Phase I with several unresolved data gaps on a property with an industrial history deserves more scrutiny than the clean summary page might suggest. Ask your environmental consultant directly whether any data gaps affected their conclusion, and if so, how.
Order the Phase I immediately. If it flags anything, don’t wait to order the Phase II.
Zoning and use compliance
Confirm that your intended use is permitted under current zoning — not assumed, confirmed. Then confirm that the existing use is legally conforming. These are two different questions.
A nonconforming use may have been operating legally for decades under grandfather status, but that status typically cannot be expanded and sometimes cannot be restored if the use is interrupted. If the building is destroyed and needs to be rebuilt, current zoning may not permit the same use or the same footprint. A zoning compliance letter from the municipality is a standard, inexpensive document that answers both questions definitively.
Don’t stop at use. Confirm the development standards too: setbacks, required open space, yard requirements, parking ratios, height limits, and lot coverage. An existing building can be fully compliant on use and still be a legal nonconforming structure on these standards — meaning if you ever need a variance, an addition, or a rebuild, you may find the building doesn’t meet current requirements even though it’s been sitting there for thirty years without issue. You want to know that going in, not when you’re trying to expand.
And if your transaction involves any change of use, find out whether that change triggers impact fees or development fees from the municipality or utility provider. Many jurisdictions assess these specifically when a property converts to a higher-intensity use — more parking demand, more water and sewer capacity, more traffic generation. These fees can run into real money and are easy to miss because they don’t surface until you apply for permits. Get a number, or at least a methodology, during diligence, not after you’ve closed.
Access and easements
Does the property have legal access to a public road? Not practical access — legal access. Shared driveways, private access easements, and flag lots can all have practical access while the legal picture is more complicated.
Easements for utilities, drainage, shared parking, and ingress and egress can encumber use significantly and don’t always appear in obvious places. This is one of several reasons you’ll want a title commitment and a current survey — and we’ll spend a full post in a few weeks walking through exactly what to look for in both. For now, the short version: order both early, and review them together rather than separately.
Service contracts
What runs with the building? HVAC maintenance agreements, elevator service contracts, landscaping, security monitoring, pest control — many of these are assignable and survive the sale by default unless terminated. Know what you’re assuming before closing. Some of these contracts have early termination fees. Some are on terms you’d never have agreed to on your own. Request and review every service contract during diligence, not after.
Tax history
Review three to five years of assessed values and tax bills. Understand the trend. Understand whether there are any delinquencies or pending appeals that will survive the closing. And understand what this transaction may trigger going forward.
In Indiana, the sale price is a significant input to the assessor’s next review. If you’re buying at a price substantially above the current assessed value, you should expect upward pressure on the assessment after closing. That’s not a reason not to buy — it’s a number to underwrite. Model the tax scenario that follows a reassessment and make sure your NOI still works.
Estoppel certificates
If the property is tenanted, require estoppel certificates from every tenant before closing. An estoppel is a signed statement from the tenant confirming the lease terms, the rent currently being paid, any landlord defaults the tenant is aware of, and any side agreements or modifications not reflected in the written lease.
What a tenant says in an estoppel binds them. That’s the value of the document. It also tells you, quickly, whether there’s a gap between the lease on paper and the relationship on the ground — which is exactly the kind of thing the seller’s representations about the leases won’t necessarily catch. A tenant who is reluctant to sign an estoppel, or whose estoppel doesn’t match the lease you were shown, is telling you something worth knowing before you close.
If you’re financing the acquisition, ask your lender early whether they’ll require Subordination, Non-Disturbance, and Attornment agreements from tenants. SNDAs and estoppels both require tenant cooperation and signatures, and tenants are more responsive when you only have to go to them once. Request both at the same time rather than circling back a second time after your lender raises it later in the process.
Deferred maintenance
A commercial property inspection will identify deferred maintenance, but ask your inspector specifically about the items most likely to create immediate capital expenditure: roof condition and age, HVAC systems and remaining useful life, electrical service capacity, plumbing, and ADA compliance status.
These are the items that generate year-one surprises for buyers who didn’t price them in. A roof with three years of useful life remaining isn’t a deal-killer — it’s a negotiating point, a reserve line item, or both. The mistake is discovering it after closing when it’s just an expense with no offset, and a seller’s representation that the building is in “good condition” won’t reimburse you for a roof replacement.
Utility capacity
Confirm that the building has adequate electrical, water, and sewer capacity for your intended use — particularly important if you’re changing the use, such as converting an office building to a restaurant or a warehouse to light manufacturing. Utility upgrades are expensive and often require coordination with the municipality or utility provider on timelines you can’t fully control.
There’s a second utility question that gets missed even more often: confirm where the utility service actually runs to reach the building. Service should come from a recorded easement or from the public right-of-way along the street. It’s not unusual to discover that a water line, sewer lateral, or electrical service physically crosses a neighboring property with no recorded easement protecting that access. If that’s the case, the neighboring owner could theoretically block or disrupt service, and you’d have no recorded right to be there. This is exactly the kind of issue a careful survey and title review will catch — another reason both documents matter as much as the inspection itself.
One final point on timing
Every item on this list is more manageable when you start it on day one of the diligence period. Environmental reports take time. Title curative work takes time. Estoppels and SNDAs require the cooperation of tenants who have their own schedules. Survey scheduling depends on the surveyor’s availability.
Buyers who treat the first two weeks of diligence as runway and the last week as deadline time consistently have worse outcomes than buyers who start everything immediately and use the back half of the period for resolution and negotiation. The contingency period isn’t a review window. It’s a resolution window — and resolution takes time you don’t get back. And it’s your own diligence, not the seller’s paperwork, that tells you whether the deal in front of you is the deal you actually agreed to.
Want a copy of this checklist as a clean PDF you can use during an actual diligence period — with space for notes and status tracking on each item? Reply to this email with “checklist” and I’ll send it over.