Due diligence is a comprehensive, complex, and critical stage in any commercial real estate acquisition. You don’t want to leave any stone uncovered, and you want the most time available to review all documents and look for potential red flags relating to the property, its title, tenant relationships, and numerous other considerations. That’s why we’ve created the checklist below, which outlines many of the key documents, records, and financial information typically required for a thorough due diligence review on a prospective property acquisition.
In many transactions, we recommend clients incorporate this checklist directly into the purchase and sale contract and require that the specified due diligence period will not commence until the date that the seller produces the last of each of these deliverables. Simply put, a potential buyer of a property, should have all the necessary documentation in hand before you start the intensive due diligence process.
Whether you are a growing business looking for your first independent location or a developer with an experienced deal team conducting diligence on multiple acquisitions simultaneously, we hope this checklist will serve as a helpful guide for the items you will need to make the most informed decisions on your next real estate acquisition.
- The most recent owner’s title insurance policy or title commitment on the property in the seller’s possession or control together with all related documents.
- The most recent ALTA/NSPS land title survey and topographic study for the property together with copies of all construction blueprints, engineering plans, site plans and as-built drawings in the seller’s possession or control.
- Legal description of the property.
- Zoning Compliance Certificate for the property and all zoning approvals (including variances and any pending applications).
- Declaration of covenants, conditions, restrictions, reservations and easements for the property.
- Seller’s third-party engineering, environmental reports (including but not limited to Phase I and Phase II reports, NFR letters, mold abatement reports and underground storage tank testing and closure reports), appraisals, soil tests, boring reports, foundation reports (logs of pilings), termite or radon studies.
- A true, correct and complete copy of each written lease and each guaranty (together with any amendments), and a certification that there are no oral leases or oral understandings, if any.
- An accounting of all rent and other income, common area maintenance, security deposits and real estate tax contributions paid by any tenant at the property, including, without limitation, a certified rent roll, showing current rent, previous rent if applicable, delinquencies, security deposits, years of occupancy, lease commencement date and lease termination date.
- All security deposits and any other amounts to which any tenant, vendor, or any other party may be entitled.
- A copy of the last three years’ real estate tax bills, including special assessments or incentives, copies of all tax protests, related correspondence and protest results for the property and copies of the prior two years’ utility bills for the property.
- A true, correct and complete copy of each written service contract (together with amendments thereto, if any) and a true, correct and complete written summary of each oral service contract, together with copies of any and all other contracts and agreements relating to the operation, maintenance and repair of the property.
- An accounting of all income and expenses related to the property, including collection reports and tax statements for the last three years.
- A list of all personal property, if any, owned by the seller, located at the property, and used or useful in connection with its operation and maintenance.
- A list of all permits, partial certificates of occupancy, certificates of occupancy, warranties, government notices, special assessments, code violations and unexpired guaranties and copies of same in seller’s possession or control.
- A copy of existing insurance policies and certificates and any pending claims against the property.
- A schedule of pending litigation, if any, affecting the property or seller’s ability to convey the property.
- A copy of any notices from the local government regarding condemnation.
- Confirmation of any sales taxes that seller pays to the state, county or local government (i.e. for a purchase in Chicago, Illinois, the State of Illinois, Cook County and the City Chicago each require their own bulk sales filing to determine in any taxes need to be withheld by the seller at closing)
- Any and all other matters as purchaser may deem reasonably necessary to satisfy itself, in its sole discretion, concerning the property and the status of the property’s title.
The information provided herein is intended for general purposes only and is not intended to be legal advice. If you desire legal advice for a particular situation, you should consult an attorney.
