Legal Due Diligence Checklist for Buying Commercial Property

Purchasing commercial real estate is a significant investment that carries both opportunity and risk. To protect yourself from unexpected legal issues and financial pitfalls, conducting thorough legal due diligence is essential. This process helps verify that the property is legally sound, properly zoned, and free of encumbrances that could hinder its intended use or value. Here’s a practical legal due diligence checklist to guide you through a smart and secure purchase.

1. Title and Ownership Verification

Start by confirming the seller’s legal ownership of the property. Request and review the property’s title deed and ensure it’s free from disputes. Engage a title company or real estate attorney to conduct a title search to uncover:

• Liens or mortgages
• Easements or rights of way
• Restrictive covenants
• Pending litigation

Clear title is crucial to transfer ownership without future legal challenges.

2. Zoning and Land Use Compliance

Zoning regulations determine how a property can be used (e.g., retail, industrial, office space). Verify:

• Zoning classification and permitted uses
• Any variances, special permits, or zoning violations
• Whether current and planned use complies with local regulations

If you intend to develop or change the use of the property, consult with a zoning attorney or local planning board.

3. Environmental Assessments

Environmental issues can pose serious legal and financial risks. Order an Environmental Site Assessment (ESA), especially if the property was used for industrial or agricultural purposes. Look for:

• Contamination or hazardous waste on-site
• Underground storage tanks
• Asbestos or lead-based materials
• Compliance with environmental laws

If contamination is found, cleanup costs may fall on the buyer without proper legal safeguards.

4. Lease and Tenant Agreements

If the property has tenants, review all current lease agreements to assess income potential and obligations. Examine:

• Lease duration and renewal terms
• Rent amounts and escalation clauses
• Maintenance responsibilities
• Security deposits and rent arrears

Check for tenant disputes or lease terms that could reduce the property’s value or limit your control.

5. Permits and Building Code Compliance

Ensure the property has all necessary permits, including:

• Occupancy permits
• Construction and renovation permits
• Fire and safety inspections

Investigate whether the building complies with local and national codes. Violations or expired permits can delay operations or require costly corrections.

6. Financial and Tax Records

Request recent property tax bills, utility expenses, and income statements. Confirm:

• Property tax status and assessments
• Special assessments or pending revaluations
• Utility service history and costs

Also review any recent appraisals or insurance claims that might affect the value.

7. Corporate or Entity Status

If buying from or into a business entity, confirm that it is in good legal standing. Review:

• Articles of incorporation
• Operating agreements
• Board resolutions approving the sale

You’ll also want to confirm the person signing the deal is legally authorized.

Read more: Legal Considerations When Buying an Existing Business

Final Thoughts

Legal due diligence isn't just a formality—it’s your protection against future liabilities. While this checklist provides a strong starting point, working with experienced legal counsel and real estate professionals is the best way to ensure a smooth, secure transaction. Buying commercial property is a major move—make sure it’s legally airtight.

For legal help in California and your other needs, contact BERYS LAW on this page. We also offer courses on real estate investing, landlording, and templates right here!