Questions to Ask When Buying a Commercial Property
These are the questions to ask when buying commercial real estate, written for an investor weighing a leased building and for a business owner buying a commercial building to work from. The 61 questions run in the order a purchase does: the seller and the price, the income and leases, running costs, the building and site, financing, and last the contract and closing. They are not all for the seller: several go to the listing broker, a lender, the tenants or the planning office. The vocabulary is American (rent roll, estoppel, Phase I) and the rules on tax, zoning and disclosure differ by country and state, so use the list to decide what to ask and have a local lawyer and lender confirm how each point works there.
The questions
Each question, and why to ask it
Seller and price
Why are you selling, how long have you owned it, and what did you pay?
Why ask it
The purchase date and price are usually public record, so this is a test of candor as much as a question. A sale timed just before major lease expiries, a loan maturity, or a large capital item coming due is a different situation from a partnership simply winding up, and the seller's answer sets up everything you check next.
What exactly is included in the sale: the land, the building, fixtures, signage, and any adjoining lot or parking?
Why ask it
A site can sit on more than one legal parcel, and the parking beside it may be held under a separate lease or easement. Ask for the parcel numbers and match them to the survey, since a lot left out of the deed can leave the building short of the spaces its tenants rely on.
Will the building be delivered vacant, with tenants in place, or with the seller staying on as a tenant?
Why ask it
A buyer who plans to run a business from the building needs possession on a date, and the existing leases may not allow it. If the seller wants to stay and rent the space back, the rent, term and repair duties of that lease are part of the price and belong in the contract, not in a conversation after closing.
How was the asking price arrived at: income in place today, projected rents, or what an owner-occupier would pay?
Why ask it
Each basis produces a different number. A price built on rents nobody has achieved yet asks you to pay now for leasing work you would do yourself, while an empty building suited to one business is usually argued from what similar buildings sold for per square foot. Knowing which case the seller is making tells you which evidence to test.
Which figures in the offering memo are actual and which are estimated?
Why ask it
Market rent, vacancy, management fees and reserves are the lines a pro forma tends to fill with a favorable assumption. Have the broker mark every line as historical or projected, then rebuild the income yourself using only the historical ones.
Do you represent the seller, me, or both of us in this sale?
Why ask it
The listing broker is normally hired by the seller and working toward the seller's price, however helpful the tour feels. Agency rules differ by state and country, so find out how representation works where the building is, and consider a buyer's broker or lawyer who answers only to you.
What have comparable buildings nearby sold for and leased for in the last couple of years?
Why ask it
Sale comparables test the price and lease comparables test the rents behind it, so you need both. Then run your own numbers at an interest rate a lender has actually quoted you, because a deal that only works on rents above what nearby buildings achieve is a leasing plan, not an income stream.
What competing space is being built or coming vacant nearby?
Why ask it
New supply resets asking rents whether or not your building has changed. A broker who works the submarket can name the projects and the tenants shopping right now, and one who cannot is not the person to rely on for your rent assumptions.
How long has the property been on the market, and has an earlier deal fallen through?
Why ask it
A contract that died during diligence usually died over something another buyer found: a report, a tenant, or a lender's appraisal. The seller may not be free to hand over a previous buyer's reports, but asking what ended the last deal often points you to the first thing to check.
If I needed to sell in three years, who would buy a building like this?
Why ask it
Specialized buildings and small-town locations can take a year or more to move. A clear answer naming the buyer type, whether a local owner-user, a small fund, or a tenant, tells you the exit exists. A vague one tells you your capital may be stuck.
Income and leases
Can I see the current rent roll showing each lease's start and end dates, base rent, escalations, options, and security deposit held?
Why ask it
A summary marketing figure hides the shape of the income. What matters is when each rent steps up, which tenants are on month to month, and how much of the income falls inside firm lease terms and not in option periods a tenant may never take up. Deposits also have to be accounted for and transferred at closing, and they are frequently missing from a seller's numbers.
Can I see trailing twelve month operating statements, three years of prior statements, and the last common area maintenance reconciliations?
Why ask it
Reconciliations show what tenants were actually billed and whether they disputed it, which is where inflated recoveries surface. Compare the trailing twelve months against earlier years line by line; expenses that drop sharply in the year a property is marketed often reflect deferred work rather than efficiency.
What is occupancy today, and what was it two years ago?
Why ask it
A building that filled up in the last six months has not yet shown it can keep its tenants. Recent lease-up often means short terms, concessions, and a wave of expirations that will land on you and not on the seller.
Are the leases triple net, gross, or something in between, and who pays for what?
Why ask it
The same rent number means very different things depending on who covers taxes, insurance, and repairs. Read the actual documents rather than the summary, because mid-range leases often leave roof, structure, and parking with the owner while the summary just says net.
How do the rents in place compare with what the same space would lease for today?
Why ask it
Rents well above market look good in a listing and are the ones a tenant renegotiates or walks away from at expiry. Rents below market are upside only if the lease lets you reach it, so check each one against its remaining term and any renewal option at a fixed rent.
Which tenants hold renewal options, early termination rights, exclusive use clauses, or co-tenancy provisions?
Why ask it
These clauses decide whether the income is yours or the tenant's to walk away from, and they do not appear on a rent roll. An exclusive can stop you leasing a vacant unit to the tenant you want, and a co-tenancy clause can let several tenants cut rent if an anchor leaves.
What share of income comes from the largest tenant, and when does that lease expire?
Why ask it
One tenant at a third of the rent is a credit position, not a diversified property, and the value of the whole building follows that lease. If the expiry falls within a few years of purchase, the price should reflect the possibility of the space going dark, not the hope of a renewal.
Who stands behind each lease: the operating business, a parent company, or a personal guarantor?
Why ask it
A lease signed by an entity with no assets is only as strong as that tenant's wish to stay. Read the guaranties themselves and check whether any have expired or been released, because a guaranty that fell away after the third year is easy to leave out of a summary.
What concessions were given to sign the current tenants, and how much free rent or buildout work is still owed?
Why ask it
Free months and buildout allowances can make a face rent look stronger than the income behind it, and whatever is still owed passes to you with the building. If a tenant is in month four of nine months free, the cash flow in the listing does not exist yet, so get the outstanding figure in writing along with the lease pages that create it.
Has any tenant been late, in default, on a payment plan, or given notice of a problem?
Why ask it
Payment ledgers rather than assurances answer this, and a tenant who has been chronically thirty days late for a year is a vacancy in progress. Any correspondence about deferrals, abatements, or workouts matters as much, since those arrangements rarely appear in the accounting.
Are any tenants related to the seller, or is the seller's own business one of them?
Why ask it
A lease between an owner and the owner's own company can be written at whatever rent flatters the building. Find out what happens to that tenancy at closing, and compare its rent with what unrelated tenants here pay for similar space.
Does any tenant hold a purchase option or a right of first refusal on the building?
Why ask it
A right of first refusal can let the tenant match your offer after you have paid for diligence, and a fixed-price option can cap what the property is worth to anyone else. These rights sit in the leases or in recorded documents, so ask for a written waiver before you order reports.
How long has each vacant space been empty, and what offers has it had?
Why ask it
A unit that has sat empty for two years at the asking rent is saying the asking rent is wrong, or that something about the space puts tenants off. The leasing broker's log of inquiries and rejected offers is the most direct evidence of what the space will really lease for.
Do any leases cap the charges I can pass through, exclude capital repairs, or give the tenant audit rights?
Why ask it
Caps and exclusions decide how much of a new roof or a jump in the tax bill you can recover. A building marketed as fully net can turn out to hold several leases that stop recoveries rising more than a fixed percentage a year, which leaves the excess with the owner.
Will each tenant sign an estoppel certificate, and can I speak with them directly?
Why ask it
An estoppel is the tenant confirming in writing what the lease says, what they pay, what is owed, and that nothing else was agreed, which is the main way side deals come to light. Sellers often hold back tenant contact until late in the deal so nobody is unsettled, which is reasonable; refusing to deliver estoppels at all is a different matter.
Running costs
How will this property be assessed for tax after a sale at this price?
Why ask it
In many jurisdictions a sale triggers reassessment, so the seller's low tax bill on an old basis is not the bill you will pay, and underwriting their figure can wipe out your margin. Call the assessor's office yourself and ask how a sale at your price would be treated.
What do you pay for insurance, with which carrier, at what deductibles, and what is the claims history?
Why ask it
Premiums for wind, flood, and older construction differ sharply by region and can move a long way in a year, so a quote in your own name may come back far above the seller's renewal. A claims history also flags recurring water, roof, or liability problems that the property condition report may miss.
Which utilities are separately metered, and which costs does the landlord carry?
Why ask it
Master metered buildings put the landlord in the middle of every consumption dispute and make recoveries an argument, particularly with tenants who run long hours. A year of utility bills set beside the recovery calculations shows how much of the cost actually gets passed through.
Who manages the building now, what do they charge, and how much of the work does the owner do personally?
Why ask it
An owner who answers the phone, walks the roof and chases rent is doing a job that will cost you a fee or your own evenings. Put a market management fee into your numbers either way, and ask the current manager which tenant or system takes up most of their week.
What leasing commissions, management agreements, and service contracts would I inherit?
Why ask it
Commissions can be owed on future renewals and options, which is a real cost that rarely appears in the offering material. Management, landscaping, security, and elevator contracts may also have notice periods or termination fees, so ask for copies and check what survives a sale.
What has been spent on repairs and capital work in each of the last five years, and can I see the invoices?
Why ask it
Invoices show who did the work and whether a repair was a patch or a replacement, which a single line called repairs and maintenance cannot. Repeat visits for the same leak or the same rooftop unit forecast next year's bills better than the seller's budget does.
Are there association dues, shared maintenance agreements, or a business district levy on the property?
Why ask it
A unit in a commercial condominium, or a lot inside a larger retail development, can carry dues and assessments the owner neither controls nor can always pass on in full. Ask for the association's budget, its reserve balance and the minutes of recent meetings, which is where a planned assessment first shows up.
Building and site
What deferred maintenance is outstanding, and how old are the roof, HVAC units, parking surface, and electrical service?
Why ask it
These are the items that eat cash in the first few years, and spending on them is often the first thing to stop once an owner decides to sell. Get install dates and warranty documents per unit, then have your own consultant price replacement instead of accepting a general reassurance about condition.
Have Phase I environmental, property condition, roof, and ALTA survey reports been prepared, and may I see them?
Why ask it
Existing reports are useful for what they mention in passing, even where you commission your own, and a report the seller declines to share is worth noting. A lender will usually require some of these anyway, so ordering them early avoids a rushed decision at the end of the diligence period.
What has this site been used for historically, and was there ever a dry cleaner, auto shop, fuel storage, or manufacturing here?
Why ask it
In the United States and many other places a current owner can be held responsible for contamination someone else left, and these are the uses that tend to leave it, sometimes from a tenant decades ago. A Phase I looks at historical records for exactly this reason, and a specific past use is what turns into a recommendation for soil or groundwater testing.
Is there asbestos, lead paint, or an underground tank on record, and is there a management plan for it?
Why ask it
Older buildings often contain materials that are left in place and managed, which works until you renovate and have to pay for removal. Rules on surveys and disclosure differ by country and state, so ask your consultant what is required where the building stands before you price any refit.
Is the current use fully conforming under zoning, and is there a certificate of occupancy for each space?
Why ask it
A legal nonconforming use may not be rebuildable after a loss and can restrict changes, which affects both financing and insurance. Ask the municipality for a zoning verification letter rather than relying on the seller, and check that any tenant buildout was permitted and signed off.
Would zoning allow the use I have in mind, and what approval would a change of use need?
Why ask it
The seller's use being lawful says nothing about yours. A move from warehouse to retail, or from office to medical, can need a fresh approval and bring parking, fire and accessibility upgrades with it, so put the question to the planning office in writing while you can still withdraw.
How many parking spaces are there, and what does code require for the current tenant mix?
Why ask it
Where a code sets parking minimums they usually go by use, so a building that complies with offices in it can fall short the moment you lease space to a restaurant or a medical practice. A shortfall limits who you can lease to, which is a direct constraint on income rather than a technicality.
Are there open code violations, unclosed permits, or pending special assessments?
Why ask it
Work done without a permit can become your problem at the next inspection or the next sale, and an unclosed permit can block your own future one. Pull the municipal file yourself instead of relying on the seller's memory of what was finished.
What easements, access agreements, or restrictive covenants are recorded against the property?
Why ask it
A right for the lot next door to cross yours, a utility corridor, or a covenant banning certain uses can rule out the extension or the tenant you were counting on. The title commitment lists these as exceptions, and each one should be read against the survey to see where it falls on the ground.
Is any part of the site in a mapped flood zone, and has the building ever taken on water?
Why ask it
Flood mapping affects whether a lender demands separate cover and what that cover costs, and the maps are redrawn from time to time. Staining low on the walls, a sump in the basement or electrical gear raised off the floor are worth asking about directly, since past water rarely makes it into a listing.
Does the building meet current accessibility and fire safety requirements, and what would trigger an upgrade?
Why ask it
Many buildings may stay as they were built until an alteration or a change of use brings today's rules into force. Ask an architect or code consultant what work would cross that line locally, because an accessible entrance, new restrooms or a sprinkler system can cost more than the renovation that set them off.
Do the power supply, ceiling height, floor loading, and loading access suit the business that will operate here?
Why ask it
These are the limits that are costly or impossible to change once the building is yours. Have whoever runs operations walk it with a list of what the business needs, and ask the utility what a larger electrical service would cost and how long the wait is.
Is there room to expand on this site, or floor area the zoning would still allow?
Why ask it
Setbacks, lot coverage, height limits and parking requirements decide whether spare land is usable or only something to mow. If growth is part of your reason for buying, ask the planning office how much more the lot could carry instead of trusting a sketch in the marketing package.
Financing
Is there existing debt on the property, can it be assumed, and what would repaying it cost?
Why ask it
An assumable loan at a favorable rate can be worth more than a price concession, while a securitized loan may require defeasance, which is expensive and slow. Ask for the loan documents, the payoff quote, and the lender's assumption requirements and timeline before you agree to a closing date.
What will a lender require before financing this building, and what happens if the appraisal comes in under the price?
Why ask it
Lender conditions surface issues the sale process hid: reserve requirements, environmental reports, tenant estoppels, personal guarantees. Raise it before you sign, because the loan is sized to the appraised value and a shortfall has to be met with more cash, a lower price or a contract that lets you out.
How much cash will I need at closing once the deposit, lender fees, reports, and reserves are added up?
Why ask it
The down payment is only one line. Third-party reports, legal fees, title insurance and lender reserves for taxes and repairs are paid on top, and a commercial lender may want a larger share of the price in cash than you expect. Ask the lender for a written estimate of sources and uses before you sign the contract.
Will the loan be recourse, and what personal guarantee would I be signing?
Why ask it
Recourse means the lender can pursue you personally if selling the property does not clear the debt. Loans described as non-recourse still tend to carry exceptions for particular acts, so have a lawyer walk you through which events would put your own assets on the line.
How long is the loan term, when does the rate reset, and how much will still be owed when it comes due?
Why ask it
Commercial loans often fall due long before they are paid off, leaving a balance to refinance at whatever rates are then on offer. Test whether the building still covers its payments at a noticeably higher rate, and look for prepayment charges that would make an early sale expensive.
If my own business will occupy the building, does that open a different kind of loan?
Why ask it
Some countries have government-backed or bank lending schemes for owner-occupied premises, with lower down payments or longer terms, usually on condition that the business uses a set share of the space. Ask a lender who writes these loans how they work where you are and how much of the building you would have to occupy.
Should the building be bought in my own name, the business's, or a separate entity?
Why ask it
The choice affects liability, tax and what the lender will accept, and it works differently from one country and state to the next. A common arrangement is to hold the property in one entity and lease it to the operating business, but settle it with your accountant and lawyer before the contract is signed, because changing the named buyer later can be awkward.
What would I need to spend in the first year before this building performs the way the listing describes?
Why ask it
This question forces the deferred items, the leasing commissions, and the buildout for vacant space into one number. Sellers and brokers rarely volunteer it, and it is usually the difference between the advertised return and your actual one.
Contract and closing
What due diligence period and deposit structure do you expect, and which documents will be delivered on day one?
Why ask it
A short period with a deposit that goes hard early is how sellers transfer risk to buyers, and it is worth less than it looks if the document delivery is slow. Tie the start of your clock to receipt of a defined list, and keep enough time after the reports arrive to renegotiate.
What representations and warranties will the seller give, and how long do they survive closing?
Why ask it
An as-is sale with no representations leaves you relying entirely on your own inspections. Even limited statements about the leases, lawsuits and known violations give you a claim if they prove false, provided they outlast closing and the selling entity still has assets to answer it.
Is there any pending or threatened litigation, condemnation, or dispute with a tenant or an adjoining owner?
Why ask it
A road widening that takes the front parking, or a boundary argument with the lot next door, changes what you are buying. Ask the seller to answer in writing in the contract, and have your lawyer search court and municipal records instead of taking silence as a no.
Are there liens, unpaid taxes, or unpaid contractor bills against the property, and will they be cleared at closing?
Why ask it
A mortgage the seller is paying off is expected; a contractor's lien, a court judgment or back taxes can stay with the property if nobody deals with them. The title search should list each one, and your lawyer can explain what an owner's title policy covers and leaves out where the building is.
What happens if a report, the appraisal, or a tenant estoppel comes back with a problem?
Why ask it
The contract should say whether you can walk away with your deposit, ask for a price reduction, or require the seller to fix the issue. Agree this while both sides are still keen, because a buyer with no stated remedy is left choosing between closing anyway and losing the deposit.
What transfers to me at closing: security deposits, prepaid rent, warranties, keys, plans, and tenant files?
Why ask it
Deposits and rent paid in advance belong to the tenants or to the period you will own, so they should appear as credits to you on the settlement statement. Roof and equipment warranties often need the manufacturer's consent to transfer, which can take weeks and is easy to forget until the day itself.
Who pays the transfer taxes, title insurance, survey, and brokers' commissions?
Why ask it
Custom on who pays what differs from one market to the next, and on a commercial sale every item is open to negotiation. Ask the title company or closing lawyer for an estimated settlement statement early, so the split is argued over once and not at the closing table.
What could delay closing, and what would an extension cost me?
Why ask it
A lender's approval of a loan assumption, a late estoppel and a slow zoning letter are the usual suspects. Write into the contract how extensions work and what they cost, because a seller holding a non-refundable deposit has little reason to be generous once the date has passed.
Commercial Property Due Diligence
Practical guidance for the conversation itself
Rebuild the Numbers Yourself
Start from the leases, not the summary
Read every lease and abstract it into a single table: term, base rent, escalations, options, recovery method, exclusives, termination rights, and outstanding landlord obligations. The offering memorandum is a marketing document. Your abstract is the only version of the income you should rely on, and building it tends to turn up items nobody mentioned.
Reset the expense side to your ownership, not theirs
Reassess property tax at your purchase price, insert your own insurance quote, add management at market even if you plan to self manage, and include a per square foot reserve for roof, paving, and equipment replacement. Owner operators frequently show expenses that assume their own unpaid labor, which does not transfer.
Underwrite the rollover, not the average
Lay the lease expiries out on a timeline and ask what each space would lease for next time, how long it would sit empty, and what buildout and commission it would take. A building with a strong headline occupancy and half its leases expiring in year two carries most of its risk in that single year.
Confirm income with the tenants themselves
Estoppel certificates and, where the seller permits it, brief tenant conversations are the check on everything else. Tenants will tell you about side agreements, unresolved repairs, and their own plans for the space, which is information no document set contains.
Physical and Legal Diligence
Commission your own reports
A property condition assessment, a Phase I environmental report, a roof survey, and an ALTA survey are the standard set, and a lender will usually want most of them. Order them early in the diligence period so there is still time to negotiate on what they find, rather than a week before the deposit goes hard.
Read title exceptions line by line
Easements, access agreements, restrictive covenants, and recorded parking or signage arrangements all limit what you can do, and some of them explain the site layout. Have counsel explain each exception in plain terms, and check that recorded easements match what the survey shows on the ground.
Verify use and compliance with the municipality
Ask for a zoning verification letter, confirm the certificates of occupancy for each space, and check whether tenant buildouts were permitted. Where accessibility compliance is at issue, get a specific opinion on what triggers an upgrade obligation, since a change of use or a renovation can bring it forward.
Test the building against your own business if you will occupy it
An owner-occupier is buying a workplace as well as an asset, so the checks run both ways. Confirm that zoning allows your use, that power, loading and parking suit how you operate, and that you can take possession on the date you need. Then price it as a landlord would: if the business outgrew the space or closed, the building would have to lease or sell to someone else.
Walk the building with a trade, and after hours
Walk the roof, the mechanical rooms, the electrical room, and the loading area with someone who works on those systems. Then visit again in the evening and on the weekend to see the parking, the neighbors, and how the property is actually used when nobody is expecting you.
The Debt and the Contract
Get a real loan quote before agreeing a price
Lenders size loans against the property's income, so their view of your rent roll may differ from yours, and the resulting proceeds change what you can pay. Ask what coverage and reserve requirements they impose, and what recourse they want, before the contract locks you to a closing date.
Buy time in the purchase agreement
Tie the diligence period to receipt of a listed set of documents, keep the deposit refundable until your reports are back, and set the closing date around a realistic loan and, if applicable, loan assumption timeline. A short free look period with a hard deposit is one of the costlier concessions a buyer can make.
Nail down what transfers at closing
Security deposits, prepaid rent, tenant files, warranties, service contracts, keys and access codes, and any leasing commission liabilities all need to be addressed explicitly. Prorate taxes, rents, and utilities as of closing, and get written confirmation of any lien releases.
Where Buyers Get Caught
Underwriting the seller's tax bill
Where a sale triggers reassessment, the tax bill at your purchase price can be the single largest change to net income after closing, and it can be worked out in advance. Ask the assessor, not the seller, how it is done locally.
Believing occupancy without reading the leases
Full occupancy on short leases, with termination rights or below market rents, is a very different asset from full occupancy on long leases with escalations. Occupancy is a headline; lease terms are the substance.
Skipping environmental work on a small deal
Contamination liability does not scale down with purchase price, and a former dry cleaner or fuel tank can cost more to address than the building is worth. The report is cheap by comparison.
Treating capital items as someone else's problem
Roofs, paving, and mechanical plant have known lives and fail on their own schedule. If nothing in your model funds their replacement, your returns are borrowing from a bill that has already been incurred.
Letting the diligence clock run down
Reports, tenant estoppels, lender approvals, and municipal letters all take longer than expected. Start the slow items on day one, and keep leverage by ensuring the deposit is not fully committed before they arrive.
Documents to Request
- Current rent roll with lease dates, rents, escalations, options, and deposits held
- Complete copies of every lease, amendment, side letter, and guaranty
- Trailing twelve month operating statement plus three prior years, and CAM reconciliations
- Tenant payment ledgers, and any deferral or workout correspondence
- Signed tenant estoppel certificates
- Property tax bills and assessment notices, plus any pending appeals
- Insurance policy, premium, deductibles, and five year claims history
- Existing environmental, property condition, roof, and survey reports
- Title commitment with all exception documents, and the ALTA survey
- Zoning verification letter and certificates of occupancy for each space
- Loan documents, payoff or assumption terms, and any lender consent requirements
- Service contracts, management agreement, and outstanding leasing commission agreements
- Utility bills for a full year, and capital expenditure records for the last five years