Commercial real estate due diligence checklist: seller deliveries and third-party reports

Income property is bought on its leases and its condition. A rent roll is the seller’s schedule of every tenant: space, rent, escalations, lease dates, deposits and arrears. The leases, estoppels and operating history test whether that schedule is true.

The other half of the file is reports the buyer pays for. Those reports go to you and your lender, so order them early and make sure the lender will accept the firms you hire.

For a house or a small rental, the real estate checklist is lighter and starts with inspections rather than estoppels.

The seller and its property manager deliver the lease file, the rent roll, operating statements, service contracts and warranties. Tenants sign estoppel certificates, gathered through the seller. The buyer orders title from a title company, the survey from a licensed surveyor, the Phase I from an environmental professional and the condition report from an engineer. The buyer’s attorney runs the schedule.

1. Put the review period start and end dates from the purchase agreement on a calendar.
2. Send the seller the delivery request below within the first days.
3. Order title, survey, Phase I and the property condition report at once, since they take the longest.
4. Draft estoppel forms and give them to the seller to send to tenants.
5. Compare every lease against the rent roll, and log differences for the seller to explain.

• Relying on the rent roll without reading side letters and lease amendments.
• A Phase I dated so early that it falls outside the federal timing windows at closing.
• Estoppels that tenants sign blank or with terms left out.
• Missing service contracts that the buyer cannot cancel after closing.
• Ordering reports from firms the lender will not accept, and paying twice.

Split the list by source. The seller can deliver its files quickly; third-party reports take weeks. A tenant estoppel certificate is a statement signed by the tenant confirming its rent, deposit, lease dates and any defaults, so you can rely on more than the seller’s word.

All appropriate inquiries is the federal process for evaluating a property’s environmental condition before you buy. EPA says buyers who want CERCLA landowner protections, such as a bona fide prospective purchaser, must conduct it before acquiring and keep continuing obligations after (EPA, Brownfields All Appropriate Inquiries). CERCLA itself makes these inquiries part of showing you had no reason to know of contamination (42 U.S.C. § 9601, CERCLA definitions (LII)).

EPA states that its rule at 40 CFR Part 312 treats ASTM E1527-21 as consistent with the rule, which is why buyers ask for a Phase I report under that standard (EPA, Brownfields All Appropriate Inquiries).

Timing matters more than buyers expect. The inquiries must be done within one year before acquisition (40 CFR 312.20, All appropriate inquiries (LII)). Interviews, cleanup lien searches, government record reviews, the site visit and the professional’s declaration must be done or updated within 180 days before acquisition (40 CFR 312.20, All appropriate inquiries (LII)).

Ask for the last two or three years of operating statements plus the year to date. Then check them against something the seller did not prepare, for example bank statements or the property tax bill.

• CAM, tax and insurance reconciliations sent to tenants, with any disputes.
• An aging of tenant receivables and a list of delinquent tenants.
• Utility bills for at least a year, to test the expense lines.
• Insurance loss runs and current policy declarations.
• Capital work done recently, with warranties for roofs and major systems.

A zoning report or a letter from the municipality confirms that the current use is allowed and whether the building conforms. Ask the seller for certificates of occupancy, open permits and any code violation notices.

Check the flood zone too: FEMA’s Flood Map Service Center is the official source of flood maps, and lenders use them to set insurance requirements (FEMA, Flood Maps).

• EPA, Brownfields All Appropriate Inquiries: AAI evaluates a property’s environmental conditions; the AAI rule at 40 CFR Part 312 recognizes ASTM E1527-21 as consistent with it; innocent landowners, contiguous owners and bona fide prospective purchasers must conduct AAI before acquiring and meet continuing obligations after.
• 42 U.S.C. § 9601, CERCLA definitions (LII): Defines the bona fide prospective purchaser and requires a defendant claiming no reason to know of contamination to show all appropriate inquiries were carried out on or before acquisition.
• 40 CFR 312.20, All appropriate inquiries (LII): All appropriate inquiries must be conducted within one year before acquisition, and interviews, lien searches, government record reviews, site visits and the environmental professional’s declaration must be done or updated within 180 days before acquisition.
• FEMA, Flood Maps: The FEMA Flood Map Service Center is the official source of flood hazard maps under the National Flood Insurance Program, and flood maps help mortgage lenders set insurance requirements.