In most commercial real estate purchase agreements, the buyer gets a window — 30, 45, 60 days depending on what was negotiated — to inspect the property and decide whether to proceed. During that window, the buyer typically has the right to terminate the agreement and get their earnest money back, no questions asked.
Once that window closes, the deal changes fundamentally. Earnest money is usually at risk. Exit rights narrow considerably. Whatever you didn’t find during diligence is now your problem.
Most buyers treat this window as a building inspection scheduling exercise. That is not enough.
What the Due Diligence Period Actually Protects You Against
The due diligence period is not just about finding roof problems. It is your window to discover any reason — legal, physical, financial, or regulatory — why this property doesn’t work for you. After the period expires, you may still be able to exit if the seller breaches a representation or if a specific financing contingency fails, but your unconditional right to walk away for any reason is gone.
In Indiana commercial transactions, the purchase agreement language controls everything. Some agreements give buyers a broad inspection contingency with full discretion to terminate for any reason during the period. Others are narrower — termination rights limited to physical inspection findings, with a specific definition of “material defect” that the buyer must satisfy. Know which agreement you have before the clock starts running.
This is a document problem before it is a diligence problem. If the purchase agreement doesn’t give you a broad termination right, push to negotiate one before you sign.
Also, remember, in most deals, the real estate is owned by and LLC and that LLC is going to liquidated soon after closing. Unless you have a serious fraud issue or you have an escrow hold back, there’s usually very little recourse against the seller post-closing, even if you have a clear breach of the purchase agreement. Its very hard to claw money back once the LLC distributes it.
The Four Categories of Diligence
Physical diligence is the most visible and the most scheduled. Get a property condition assessment performed by a qualified commercial inspector. For complex properties — older buildings, properties with HVAC or structural concerns, or properties with environmental use history — consider going beyond a basic inspection. A Phase I environmental site assessment is standard practice in commercial transactions, not an optional upgrade. It tells you whether there are recognized environmental conditions on the property that warrant further investigation.
Legal and title diligence runs in parallel with physical inspection. The title commitment should arrive in the first two weeks of the period. Review it with counsel. Pull and read every recorded document referenced in Schedule B-II — easements, declarations, restrictions. If there are existing leases on the property, get certified copies and read them, including all amendments.
Financial diligence matters for income-producing properties. Get at least two to three years of operating statements, actual rent rolls, utility bills, insurance history, and property tax records. CAM reconciliation statements from prior years reveal how expenses have been allocated and whether there are disputes in progress. Any pending tax assessment appeals — and in Indiana, the assessment appeal process is active — should be tracked because they affect both future tax liability and current income calculations.
Regulatory diligence is the most frequently skipped category. Verify the zoning, confirm the current use is legally conforming, and check whether your intended use is also permitted. Pull any open or recently closed building permits. Check for recorded code violations, notices from the municipality, or pending condemnation proceedings. In Indiana, municipalities maintain records of open violations — ask for them. The existence of an open violation doesn’t necessarily kill a deal, but you need to know about it before closing, not after.
What Most Buyers Miss
Estoppel certificates. If you are buying a property with existing tenants, you need estoppel certificates — documents signed by each tenant confirming the current lease terms: rent amount, lease expiration, renewal option status, that no defaults exist, and that no side agreements exist outside the written lease. The purchase agreement should require seller to deliver these; if it doesn’t, add the requirement before signing. A missing estoppel means you are relying entirely on the seller’s representation of what the leases say. That is not the same as tenant confirmation.
CAM audit rights. If existing leases give tenants the right to audit the landlord’s CAM expense allocations, that right survives the sale. You are buying a property where a tenant may have a pending audit claim that could result in a credit against future rent — reducing income you’ve already underwrote.
Assignment and change of control provisions. Many commercial leases require landlord consent to assignment — and define a change of ownership of the landlord entity as a triggering event. Some leases give tenants a right to terminate upon a change of ownership. Review every lease for these provisions before closing. Discovering that your anchor tenant has an exit right tied to the sale is not a due diligence success story if you find it after closing.
Indiana-Specific Contract Issues
The earnest money structure in your purchase agreement determines your risk during and after the due diligence period. In many Indiana commercial transactions, earnest money is paid in one deposit at signing and is refundable during the inspection period. After the period expires, it becomes non-refundable except for specific contractual breaches by the seller.
If you are inside a due diligence period and you’ve found a problem, you have three options: terminate and get your deposit back, negotiate a price reduction or seller credit, or proceed knowing the issue. Once the period expires, the negotiating leverage to get a credit or reduction diminishes significantly. Sellers know the buyer is past the clean exit point.
Under Indiana contract law, an inspection contingency that requires the buyer to identify specific “material defects” creates a burden on the buyer. If you use general language about a “satisfactory inspection” with full discretion to terminate, that is a stronger position. The distinction matters when a dispute arises over whether a termination was proper.
How to Extend When You Need More Time
If 30 days is not enough — and for complex commercial properties, it often isn’t — your purchase agreement should include a mechanism to extend the period. This might be an option to extend for an additional earnest money deposit, or a notice-based extension right.
If no extension mechanism is built in, contact the seller before the period expires. Most sellers prefer a brief extension to losing a deal. Document any extension in writing — even an email exchange confirming an additional two-week period is better than nothing. A formal written amendment is better than that.
Do not let the period expire while still conducting diligence and assume you can sort it out informally. Sellers can and do declare the inspection period expired and hold you to a non-refundable deposit. Get the extension confirmed before the clock runs out.
Bottom Line
The due diligence period is the only time in a commercial real estate transaction when you have full information rights, a clean exit, and leverage to renegotiate based on what you find. Use it to do real diligence across all four categories — physical, legal, financial, and regulatory — not just to schedule a building inspection. What you don’t find during the period is your problem after closing.
If you are buying commercial real estate, get the legal and business issues sorted out before deal momentum makes them harder to fix.
Mike Lang is a transactional lawyer who writes weekly for commercial real estate investors and owner-operators navigating the deals that define their portfolios. Questions or topics you want covered? Email Mike.