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What are due diligence considerations for commercial real estate?

On Behalf of | Oct 27, 2015 | Commercial Real Estate |

The acquisition of real property by a business for strategic, financial or development purposes often represents a substantial investment and as such must be taken with the utmost seriousness and care.

This is especially so because unlike individual consumers purchasing homes, the law in Ohio and elsewhere in the United States generally is not as forgiving to business purchasers of land who make mistakes during the process. In other words, the old adage of caveat emptor – “buyer beware” – might be softened somewhat for a consumer, but generally still applies to business real estate buyers.

“Due diligence” is the term used to describe the methodology for a business land purchaser to use to minimize the risks involved with the transaction. Due diligence checklists can be quite lengthy and detailed: topics that they need to cover in depth include:

  • The property to be purchased (for example, the property’s physical condition, zoning and land-use considerations, environmental contamination, encumbrances).
  • The seller’s circumstances (does it validly own the property, does it have authority to sell, is it subject to any liens).
  • The financing arrangements (interest rate, repayment terms, collateral requirements, reserve requirements).

The above general categories are not a comprehensive list, and each of them will include many questions to be answered. Due diligence investigations frequently require the business purchaser and a commercial and business law firm experienced with commercial real estate transactions to work closely together to identify and address all potential issues before closing the sale. Properly done, due diligence is the business real estate purchaser’s best defense against unpleasant surprises that might otherwise arise after the sale has been finalized. It should never be ignored, rushed, or taken lightly.


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