Questions to Ask When Buying a Commercial Property
Due diligence questions for buying a commercial building: verifying the rent roll and operating statements, reading the actual leases, checking title, zoning and environmental history, pricing the physical work, and understanding the debt and the contract.
The questions
Open any question for the note
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 candour 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.
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 rent is guaranteed rather than optional. 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 usually reflect deferred work rather than efficiency.
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 tenant improvement work, free rent, or landlord obligations remain unfulfilled?
Why ask it
Unfinished landlord work and remaining rent free months are liabilities that transfer with the building, and a seller who signed a new lease at a strong rent may have bought it with concessions you inherit. Ask for the figure in writing and for the lease pages that create the obligation.
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.
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. Ask specifically for any correspondence about deferrals, abatements, or workouts, since those rarely appear in the accounting.
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 only way to find side deals made by hand. A seller who resists estoppels or tenant contact is protecting something specific.
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 have moved sharply in some regions, and 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.
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 consume cash in the first three years and the ones sellers stop spending on when they decide to sell. Ask for install dates and warranty documents per unit, then have your own consultant price replacement rather than 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. Your lender will 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
Contamination liability attaches to the owner, and those particular uses are the ones that produce 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 the current use fully conforming under zoning, and is there a certificate of occupancy for each space?
Why ask it
A legal non conforming 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 fit out was permitted and signed off.
How many parking spaces are there, and what does code require for the current tenant mix?
Why ask it
Parking ratios are set 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.
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. Ask to see a year of utility bills alongside the recovery calculations to see how much of the cost actually gets passed through.
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 favourable rate can be worth more than a price concession, while a securitised 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 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 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 have comparable buildings sold and leased for recently, and what does this deal produce at the financing I can actually get?
Why ask it
Ask the broker for both sale and lease comparables, then run your own numbers with a real quoted interest rate rather than an assumed one. If the deal only works on rents above what nearby buildings are achieving, you are buying a leasing plan, not an income stream.
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 usually turns up two or three 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 labour, which does not transfer.
Underwrite the rollover, not the average
Lay the lease expiries out on a timeline and ask what each space would re let for, how long it would sit empty, and what fit out 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 your lender will 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 fit outs 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.
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 at the weekend to see the parking, the neighbours, 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 the most expensive concession in a deal like this.
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 at closing, and get written confirmation of any lien releases.
Where Buyers Get Caught
Underwriting the seller's tax bill
A reassessment at your purchase price can be the single largest change to net income after closing, and it is entirely predictable. Ask the assessor rather than the seller.
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